Household Net Worth Soars During Pandemic
Photo Credit: Todd Kent
Quarterly US Household Net Worth in Billions of Dollars (2001-Present)
One of the more interesting statistics of the COVID pandemic relates to household net worth. Federal Reserve data shows household net worth recovered quicker during the COVID pandemic than during the 2008 financial crisis. Household net worth fell $11 trillion, or -16%, from 3Q 2007 through 1Q 2009. In contrast, net worth increased by $31 trillion, or +28%, from 1Q 2020 through 2Q 2021.
Why did net worth rise during the pandemic?
Two categories - home values and stock market prices. Both contributed to an increased net worth. The National Association of Realtors reported the average home sale price rose from $316,100 in March 2020 to $376,000 in August 2021, a +18.9% increase. In the financial markets, the S&P 500 index of large-cap stocks produced a +98% price return from its pandemic trough on 3/23/2020 through 10/13/2021.
The question is whether the net worth increase, which is likely paper gains in retirement accounts and tied up in homes, will be tapped to fund additional consumption. Historical GDP data shows consumer spending traditionally accounts for ~70% of U.S. economic activity. The economy may benefit from more robust economic growth if the net worth increase is used to fund additional consumption.
From a big-picture perspective, household net worth data highlights the importance of remaining invested during economic uncertainty and market selloffs. Stock market volatility is an unfortunate side effect of investing. However, maintaining a steady approach to investing and keeping an eye on the long-term can help get you through uncertain times.
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