Cha-ching, Housing Pads U.S. Wallets

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Lower personal savings rates and household net worth tend to increase the burden on future savings to fund retirement security; rising stock and housing markets have driven household net worth upwards.

The Fed reported that U.S. household wealth reached an all-time high milestone in Q1, surpassing $100 trillion for the first time. The robust employment landscape and a rising stock market helped; however, the biggest contribution to the boost in wealth was home prices. Housing prices have recovered and are now higher than their 2006 pre-bust high water mark. Last month the S&P Case Shiller index reported overall YoY price increases of 6.8% for the 20 metro area with some cities like Seattle, San Francisco and Las Vegas soaring by double digits. The reason behind rising prices is limited supply. Less than 1.3 million new homes are being built per year across the country. Compare this to 2006 when 2.3 million new homes were constructed. Household formation has slowed but still 400,000 new households were established in 2017, (down from 2.4 million new households in 2011) and all of the excess supply from the bubble years has been absorbed. Nationwide higher rental rates are encouraging home ownership. In addition, it turns out Millennials are not content to live in their parent’s basement. The biggest change in home ownership rates was among the millennial generation last year with an increase from 34.7% to 36%. In addition, 80% of Millennials report wanting to own a home. The increase in wealth will flow into consumer spending although consumers are more cautious since the recession and are expected to spend only ~1% of their newfound wealth. Watch the sharp rebound in U.S. household wealth since 2009 on page 59 of the Global Perspectives book .

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