Fed’s Flow of Funds Highlights (and Lowlights)
The Fed’s Flow of Funds report was released yesterday and, as usual, it contained a treasure trove of (somewhat stale) data that’s nevertheless fascinating. Herewith some observations:
Household net worth rose by about $2.7 trillion in Q3. It now stands at about $53.4 trillion, the highest level in a year:
click for giant charts
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Our debt-to-income ratio, unfortunately, is still too elevated at 128%, and is only coming down very slowly. Continued improvement needs to be seen here, as we’re still about $1.5 trillion above the trendline, which is at 114% (forget about mean reversion — that’s about 77%).
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Owners’ Equity as a Percent of Household Real Estate was revised (downward) to a first quarter trough of a staggering, almost unthinkable, 33.5%. It has rebounded in the subsequent two quarters to a merely hideously pathetic 38%.
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The chart above ties in beautifully with a WSJ article (referenced in yesterday’s reading), titled American Dream 2: Default, Then Rent — the same day the Flow of Funds report was released:
“People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.
Thanks to a rare confluence of factors — mortgages that far exceed home values and bargain-basement rents — a growing number of families are concluding that the new American dream home is a rental.
Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.”
As a societal matter, is the appeal of home ownership — notwithstanding the various (mostly tax) advantages of owning (e.g. having mortgage interest deductions) over renting — going the way of the dodo ?
Could one not infer as much from the steady decline in owners’ equity over the past many decades, as this metric has moved steadily downward from over 80% to under 40%?
Are we destined to become a nation of renters, particularly in light of the pain that’s been inflicted by the bursting of the housing bubble? What are the longer-term implications if such a shift is, in fact, taking place?
Our demographics — an aging boomer population — are going to further slow the housing market’s recovery, but that’s another post.
De.li.cious
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December 11th, 2009 at 7:27 am
Home ownership was worthy as long as affordability existed (and this changed with easy credit).
The low equity suggests that in effect many home “owners” are renters in all but name, and the realistic ones should swallow their pride and enjoy the benefits of rent.
We need a further leg down in real-estate (in many cities, especially on the coasts) to drive down prices so mortgages are at most 25% of gross income, we have a way to go.
December 11th, 2009 at 7:27 am
Matt Taibbi has a great piece in Rolling Stone about how Obama’s insider’s are interested more in lining Wall Street pockets than solving the econ crises: http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/print
December 11th, 2009 at 8:05 am
Good post but by the end………… come on the data is there make a call.
“Are we destined to become a nation of renters, particularly in light of the pain that’s been inflicted by the bursting of the housing bubble? What are the longer-term implications if such a shift is, in fact, taking place?”
First long-term implication started in Jan. “savings/debt reduction” blah blah blah … went through the roof but how much of that was walking away from debt?
Trim tabs had some good data in Q1 & 2 on this, I haven’t kept up on it but if you’re going to post on funds flows fucking post on macro fund flows. You ended with household consolidation, which is sooooooo Q2 08 for any landlord with a brain.
You end your post with a list of questions that should have an, IMHO chart/ statement after each.
Let’s rock!!!!!!!!!!!!!! This is The Big Picture.
I keep an eye out for your post,
Thank you for posting your thoughts.
A few months ago the comments went pretty “Yahoo message Board”, so I started talking shit in a hope that commenters would realize this blog has a higher standard shit-talkers.
December 11th, 2009 at 8:05 am
Between mortgage payments, property taxes, repairs, maintenance, insurance, and fluctuating property values, owing a home isn’t an instant road to “The American Dream.”
A majority of the population owning a home made sense when most people had stable jobs and lived in one place for most of their lives. Considering the financial situation of many Americans today, especially young people, renting makes far more sense.
December 11th, 2009 at 8:21 am
cewing,
“A majority of the population owning a home made sense when most people had stable jobs and lived in one place for most of their lives. Considering the financial situation of many Americans today, especially young people, renting makes far more sense.’
I have an idea, it’s very old school.
Go to a calculator and figuire out what you can afford on a 15year fixed.
Use that number to go buy a house using a 30 year fixed.
Easy.
Before you say something like “A majority of the population owning a home made sense when most people had stable jobs and lived in one place for most of their lives.” At least look at the household mobility numbers ec….. going back to the 40′s.
Statements like that make you look like a girl that just finished a liberal arts degree.
December 11th, 2009 at 9:27 am
[...] Ritholtz, at his Big Picture blog, makes the following observation: “The chart above ties in beautifully with a WSJ article [...]
December 11th, 2009 at 9:33 am
[...] The latest look at the household balance sheet (short): http://www.ritholtz.com/blog/2009/12/feds-flow-of-funds-highlights-and-lowlights/ But before getting jiggy, check this out (medium): [...]
December 11th, 2009 at 11:04 am
Owner equity in homes went down but net household worth went up? Does that seem to be believable?
The only way that could happen is if the class income disparity has also increased – those who own an interest in the fake stock rally are a mighty small percent of households. Nothing else has increased for the rabble…. but they did abandon a lot of debt. Does that come out as a positive in the household net worth charts?
December 11th, 2009 at 11:14 am
@Wally — Owners’ Equity did not go down in the quarter, it went up. In Q2 it was 35.8%, and in Q3 it was 37.6%. It troughed (or so we can hope) in Q1 at 33.5%.
December 11th, 2009 at 4:19 pm
window washer:
I’d respond to your post, but you sound like a complete douche, and I don’t want to wreck a perfectly nice blog thread getting into a pissing contest. If you want to discuss it further – cewing@mindspring.com.