Slowly, Americans regaining net worth
Finances • Gains in stocks, home prices, push household wealth to pre-recession peak.
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It took 5½ years.

Surging stock prices and slow-but-steady home-price increases have finally allowed Americans to regain the $16 trillion in wealth they lost to the Great Recession. The gains are helping support the economy and could lead to further spending and growth.

The regained wealth — most of it from stock market gains — has been flowing mainly to richer Americans. By contrast, middle class wealth is mostly in the form of home equity, which has risen much less.

Household wealth amounted to $66.1 trillion at the end of 2012, the Federal Reserve said Thursday. That was $1.2 trillion more than three months earlier and 98 percent of the pre-recession peak.

Further increases in stock and home prices this year would mean that Americans' net worth has since topped the pre-recession peak of $67.4 trillion, private economists say. Wealth had bottomed at $51.4 trillion in early 2009.

"It's all but certain that we surpassed that peak in the first quarter," said Aaron Smith, senior economist at Moody's Analytics.

Household wealth, or net worth, reflects the value of assets such as homes, stocks and bank accounts minus debts such as mortgages and credit cards. National home prices have extended their gains this year. And the Standard & Poor's 500 index, a broad gauge of the stock market, has surged 8 percent since Jan. 1.

Some economists caution that the recovered wealth might spur less consumer spending than it did before the recession. Dana Saporta, an economist at Credit Suisse, notes that the value of home equity Americans are cashing out has fallen 90 percent in six years.

And since the housing bust, when home values fell broadly for the first time in decades, many homeowners are skeptical that higher prices will last, Saporta said. They won't necessarily spend more as a result. The upper-income Americans who have benefited most from the nation's recovered wealth don't spend as much of their money as Americans overall do.

The Dow Jones industrial average has just set a record high, and roughly 80 percent of stocks are held by the richest 10 percent of households.

And for the past five years, middle-class Americans have sold stocks and missed out on much of the rebound. In the October-December quarter, Americans dumped nearly $466 billion in stocks and bought $229 billion in bonds, the Fed's report showed.

Homes accounted for two-thirds of middle-class assets before the recession, estimates economist Edward Wolff of New York University. Among all U.S. households, they accounted for only one-third of assets. And national home values remain about 30 percent below their peak.

Still, economists expect the regained wealth to contribute further to the economic recovery.

"It should boost consumption, because as people feel wealthier they tend to spend more," Saporta said. "It doesn't necessarily mean that households will go on a spending spree."

Carl Riccadonna, an economist at Deutsche Bank, is a bit more optimistic. He thinks higher home values and some easing of credit requirements by banks will lead Americans to cash out more of their home equity.

Riccadonna forecasts that the increase in home prices alone could boost consumer spending this year by roughly $110 billion — nearly offsetting the $120 billion cost of the Social Security tax increase.

The Fed report also showed that Americans are increasingly taking on more debt, enabling them to spend more. In the October-December quarter, household debt rose 2.4 percent. It was the sharpest gain in nearly five years.

Economist Smith noted that the two key trends in the Fed report — higher wealth and more consumer borrowing — probably are enabling people to spend more at a critical time. Social Security taxes increased this year for most workers. Someone earning $50,000 has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.

On the negative side, gas prices have risen sharply. The average price for a gallon is $3.72, roughly 44 cents more than when the year began. —

How rise in worth could help the economy

It should boost consumption; as people feel wealthier they tend to spend more

A steady rise in home prices could boost consumer spending by roughly $110 billion

Americans are increasingly taking on more debt, enabling them to spend more