American households lost trillions in 2022 due to stocks and inflation yet also gained trillions due to housing equity

A recent report detailing wealth losses in the United States also found housing equity increased in the first three quarters of 2022:

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American households lost about $6.8 trillion in wealth over the first three quarters of 2022 as the stock market shed more than 25% of its value, the Federal Reserve reported Friday in the government’s quarterly financial accounts.

Nominal net worth fell 4.6% to $143.3 trillion, as the market value of assets fell by $6 trillion and liabilities rose by about $900 billion. Households’ balance sheets were propped up by a 10% increase in home equity, which is the greatest source of wealth for most American families…

Homeowners, in particular, were in good shape financially as September ended, with the equity in their houses rising to a near-record 70.5% of market value from a record low of 46% in 2012. But if home prices continue to fall as they have done in the past several months, homeowners without much exposure to the stock market will begin to feel poorer. What will happen to home prices as mortgage rates rise is a major unknown facing policy makers and homeowners alike.

Homeownership continues to bolster wealth. This fits with the emphasis on homeownership as an investment. And if people cannot purchase homes, they will not be able to build wealth in the same way.

Thinking out loud: after what happened in the late 2000s with housing prices, how would people respond to a significant reduction in housing values? Or, how would this be received if inflation is ongoing and the stock market struggles? For now, some can rest assured that their homes will retain value. But, this is not guaranteed.

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