Household finances finished strong in 2024

March 14, 2025

Household net worth reached a new record high, rising by $163 billion to a level of $169.4 trillion in the fourth quarter of last year. Gains in the underlying data were muted; the 0.1% increase in the fourth quarter was the smallest since a 0.9% decline in late 2023.

On the asset side of the balance sheet, financial assets, which include stocks, bonds, mutual funds and pensions, increased by $375 billion, or up 0.3%. The fourth quarter gain hardly registered when compared to the third quarter jump of $5.1 trillion, up 4.1%. That was offset by a $401 billion drop in the value of residential real estate in the fourth quarter, which followed a near $200 billion decline in the third quarter. Hurricanes Helene and Milton literally wiped out swathes of homes and the wealth they represented in September and October, while housing appreciation slowed. Brace for an even larger hit in the first quarter of 2025 due to the Los Angeles fires in January.

Both business and household borrowing contracted during the fourth quarter. Nonfinancial business debt lost 1.3% on an annualized basis after growing 3-4% in the first three quarters of 2024. In the Federal Reserve's most recent Senior Loan Officer Opinion Survey for the fourth quarter, banks tightened lending standards for commercial and industrial (C&I) loans to businesses. Those banks cited a less favorable or more uncertain economic outlook and reduced tolerance for risk as reasons. That was despite the full one percent in rate cuts by the Federal Reserve between September and December.

Household debt fell 2.4% on an annualized basis in the fourth quarter. That was the first contraction in household debt since COVID in the second quarter of 2020. Falling liabilities could be an early sign of consumer duress. Forbearance on student loan delinquencies lapsed in October; missed loan payments are once again eroding credit scores, which in turn is curbing access to credit. Student loan defaults comprised the single largest driver of credit defaults pre-pandemic. Delinquencies have increased on loans to low-income borrowers, which is further limiting access to credit.

Those shifts were recorded prior to the surge in uncertainty and deterioration in consumer attitudes since the start of this year. Global measures of economic policy uncertainty have eclipsed the pandemic. Domestic measures are rapidly approaching those levels.  Credit conditions tend to tighten during periods of heightened uncertainty. Firms most vulnerable to tariffs experienced the most tightening in lending conditions during the 2018-19 trade war.