Stocks drive net worth improvements

June 10, 2023

Household net worth rose to a new record high, propelled higher by a buoyant stock market and appreciating home values. Household net worth increased $5.1 trillion to a record level of $160.8 trillion in the first quarter of 2024. The one asset class that missed out in the gains in the first quarter was debt securities, posting the first drop in two years.

The value of equity assets rose $2.5 trillion in the first quarter, nearly matching the $2.6 trillion gain in the fourth quarter. The S&P 500 index rose 10.2% in the first quarter after rising 11.2% in the prior quarter. Pension assets also received a boost from the stronger performance in equity markets. Pensions appreciated by $809 billion after rising by $1 trillion.

Debt securities went out of favor in the first quarter, falling $52 billion. At the end of 2023, interest rates swung sharply as the Treasury 10-year yield fell more than 100 basis points in the span of just two months, falling from 5% in mid-October to 3.8% by the end of the year. At that time, market participants believed the Federal Reserve would ease monetary policy as many as six to seven times in 2024. Now that "higher for longer" looks to have more staying power and market yields have climbed back above 4.3%, debt will probably come back in favor in the second quarter from a return perspective.

Residential real estate values rose $934 billion as home prices appreciated in the first quarter. In March, the S&P CoreLogic Case-Shiller 20 City Composite Home Price Index increased 7.4% from a year ago, considerably better than the 1.7% rise for all of 2023.

Business and household debt both expanded in the first quarter. Nonfinancial business debt rose 1% in the first quarter from the fourth quarter, the largest increase in a year. Although commercial banks continue to remain tight with lending standards, they are notably less stringent than a year ago. In the Fed’s most recent Senior Loan Officer Opinion Survey for the first quarter, 16% of banks tightened their lending standards for commercial and industrial (C&I) loans to large and middle-market firms (e.g., businesses with annual revenue of $50 million or more). Compared to a year ago, half of all banks imposed tight lending conditions.

Household debt rose 0.7% in the first quarter, a notably slower pace than the 1.5% to 1.8% growth seen in the first three quarters of 2022, when the Fed was raising interest rates aggressively. Many households undertook mortgage debt, locking in the lower borrowing rates before they climbed even higher. With the 30-year fixed mortgage rate currently above 7%, the ongoing lack of housing supply and appreciating home values, we suspect that household debt will continue to grow at a slow pace in the quarters to come.