The impact of falling prices in the housing market and the stock market is starting to show up in the national data on households’ net worth.  According to new data from the Federal Reserve, the total net worth of all U.S. households (their assets minus their liabilities) was $56 trillion at the end of the first quarter. This is $2.2 trillion less than six months ago (when net worth reached a record high).

Declining stock prices account for the bulk of the decrease. But the estimated value of real estate owned by households also experienced a rare decline. In fact, the half-trillion-dollar decline in the first quarter of 2008 was the largest, in percentage terms, in the 55 years since the Fed began tracking it. 

The chart below shows the year-over-year percent change in the household sector’s net worth.  The recent decrease, while rare, is relatively small compared with the exceptionally large drop recorded in the early 2000’s, after the stock market bubble burst. 

The burst of that bubble wiped out $5.5 trillion of net worth. But the lost ground was soon regained—due to booming home prices.  It remains to be seen how long the latest downturn in net worth will last, and what combination of asset appreciation (and perhaps slower growth in debts and other household liabilities) might drive it.

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