For this year’s first quarter, the Fed says that homeowners’ equity — the value of houses, less the debt on them — was up about $820 billion, or 3.7 percent. That works out to an annualized increase of about 15 percent.
The increase in the home equity number, from the Fed’s updated Financial Accounts of the United States report released last week, is pretty impressive.
And it’s pretty important, too, when you consider that home equity is the biggest single asset that millions of middle-class people own.
To be sure — three of my favorite weasel words — these large home value increases are relatively small beer compared with the far bigger increase in the value of U.S. stocks over the same period.
Stocks were up $16.6 trillion, about 61 percent, for the year ended Mar. 31, according to the Wilshire 5000, and up $2.4 trillion (5.8 percent) for the March quarter.
Why am I showing you all these statistics? No, I’m not trying to engage in class warfare. Rather, I want to update and elaborate on some of the numbers that Cezary Podkul and I used when we wrote about the Fed’s impact on stock and home values in April.
Our numbers ran through year-end of 2020. The Fed’s first quarter 2021 update shows that homeowners’ wealth is continuing to grow nicely. Even though home equity is rising far more slowly than stocks are, it’s still adding substantially to our national wealth.
A major factor in the rise in home equity stems from the Fed forcing interest rates to ultralow levels. That, in turn, has produced ultralow interest rates on mortgages, which raises the prices of homes, which produces more equity for people who own their homes.
Homeownership wealth is rarely written about because the Fed statistics that measure it only come out once every three months, and they don’t get anything like the attention that the stock market and stock wealth numbers get.
Stock ownership, as Cezary and I wrote, is heavily concentrated among the wealthiest 10 percent of Americans, who own 89 percent of stock held by individuals, according to Fed statistics.
But the wealthiest 10 percent own only 45 percent of home equity. That’s still a lot of money for a relatively small group of people, but it means that home equity wealth is important to far more people than stock wealth is.
It’s not equally important for all Americans. According to Redfin, in the first quarter of 2020 the homeownership rate for Black people was 44 percent, which was about 30 percentage points below the rate for Whites. That difference has nothing to do with what the Fed did 15 months ago, but I think it’s worth mentioning to put things into context.
I’ve never hesitated to criticize the Fed for, among other things, lowering rates so much that many diligent lifetime savers can no longer earn enough interest income to cover their bills.
But something that we ought to remember — and that next time, I’ll try to emphasize — is that when the Fed went into full emergency mode in March last year and cut interest rates to close to zero and vowed to keep them there indefinitely, it was trying to increase jobs, which is part of its congressional mandate.
The increase in wealth inequality created by stock prices rising far more sharply than home equity was an inadvertent side effect of the Fed’s efforts to increase jobs — an important side effect, but an inadvertent one.
One more thing: It’s clear that the Fed’s policies (with assistance from the Cares Act and other stimulus programs) have helped create millions more jobs than our country would have otherwise had.
So although people who own little or nothing in the way of stocks or houses haven’t seen their wealth increase the way stockholders and homeowners have, some of them have gotten jobs that they otherwise might not have gotten.
I don’t know of any way to quantify these jobs’ economic value, but it’s clearly immense. It’s an example of how the numbers that we don’t have could be as important as some of the numbers we do have.
That’s something that we should all keep in mind the next time we parse economic statistics.
Cezary Podkul contributed to this report.