Consumers (Modestly) Improving Balance Sheets
By Barry Ritholtz - March 15th, 2010, 10:30AM
On Friday, the Federal Reserve released their Z.1 Flow of Funds statement for Q4 2009.
FoF is essentially a snapshot of households, companies and governement’s balance sheet. It showed a very modest improvement in the aggregate debt levels.
Barron’s noted that consumers showed some signs of cleaning up their balance sheets ever so slightly:
The Numbers
1.3%: gain in U.S. household net worth in the fourth quarter from the third
$54.18 trillion: household net worth in the fourth quarter
1.7%: decline in U.S. household debt in 2009, the first annual drop since record-keeping began in 1945
$13.5 trillion: total household debt in 2009
>
Sources: Federal Reserve, Barron’s
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March 15th, 2010 at 10:48 am
One way for distressed consumers to clear up their personal balance sheets is to “walk” from a troubled mortgage.
March 15th, 2010 at 11:08 am
The big question is has anyone tried to figuire out how much of that improvement is default. If been looking for a solid number for the last year. Haven’t seen a good work up yet. And yes I’m to busy, honestly to lazy, to do a work up myself.
Anybody know of one?
Invictus got any free time??
March 15th, 2010 at 11:09 am
whoops
I”ve been looking for a solid number for the last year.
March 15th, 2010 at 11:18 am
Or how much of the increase in net worth is due to the current bounce in the markets?
March 15th, 2010 at 11:28 am
I was watching a financial program over the weekend not sure TV/Radio that attributed much of the improvement in household debt to people washing their hands of their underwater mortgages. I don’t remember what the number was but I think it was something like 50-75% of the change. If this is truly the case, the modest gains listed above might not be quite such good news.
March 15th, 2010 at 12:10 pm
“1.3%: gain in U.S. household net worth in the fourth quarter from the third”
Is there a way to know which households? is it the top %1 the top %5, across the board?
March 15th, 2010 at 12:18 pm
Net worth up probably due to GS bonuses and market bounce.
Debt down probably due to credit card pay-down and mortgage walk-away.
March 15th, 2010 at 12:31 pm
Tough crowd here, but I agree with all of the above observations. There may be some reasons to be cautiously bullish right now, but THIS statistic is not one of them.
March 15th, 2010 at 1:07 pm
Household debt to net worth is roughly one quarter. I wonder the actual when many of those households have no debt?
March 15th, 2010 at 4:10 pm
JSchmid Says:
much of the improvement in household debt to people washing their hands of their underwater mortgages. I don’t remember what the number was but I think it was something like 50-75% of the change.
Thanks for the comment but that’s way to high.
March 15th, 2010 at 4:22 pm
Debt default or Debt payment causing balance sheet improvement?
I decided to slack off a bit and did a back of the envelope run of the numbers. Nice that my mortgage calculator would let me run a $10t 30 year at 5%. The numbers seem right in line for debt pay down of the first year or two of that note. Which means, if you consider the factors a proper workup would use, that debt retirement is below where it should be in my option. So it’s the momentum of money causing the problems instead of write offs. Looks like the banks holding off on foreclosures so they can cover the loss with ZIRP money is working, for them.
For me this makes the wind down of Fed Queasing all the more interesting to watch.
March 15th, 2010 at 4:29 pm
BTW if someone wants to do more of a work up. It looks like new homes should have added about $70-90b.