Household wealth grew in the third quarter of 2024

Stock market gains lifted household net worth to a new record level during the third quarter. Net worth increased 2.9%, or $4.8 trillion, to $168.8 trillion, beating the second quarter. Overall assets rose $4.9 trillion, more than double the 10-year average growth rate of $2.2 trillion. Liabilities inched higher by $174 billion.

The value of financial assets held, including stocks, bonds, mutual funds and pensions, jumped by $5 trillion, or 4.1%. It's the largest percent increase since the second quarter of 2021 as the economy started to fully reopen.

Equity assets alone gained $2.9 trillion, more than four times the second quarter total. Pensions added $682 billion; mutual funds increased $634 billion; and debt securities rose $278 billion. The S&P 500 index rose 5.5% in the third quarter, compared to 3.9% in the second quarter.

Household real estate values declined $237 billion in the third quarter after rising $1.8 trillion in the second quarter. The decline is largely due to the destruction of property caused by Hurricane Helene. Housing market data from the S&P CoreLogic Case-Shiller 20 City Composite Home Price Index shows an annual increase of just 4.6% around the time that Helene hit. That's a slower pace compared to earlier in the year. High mortgage rates and low affordability are still restricting demand, even though supply is also constrained. Home values continue to rise, but at a much slower pace than earlier in the recovery. Listings are up, just not where people want to buy most.

Business and households took on more debt in the third quarter. Nonfinancial business debt rose 3% on an annualized basis following first and second quarter increases. In the Federal Reserve's most recent Senior Loan Officer Opinion Survey, also for the third quarter, banks tightened lending standards, which weighed on loan demand along with the uncertainty about the course of policy due to the election.

On the consumer side, household debt rose 3% on an annualized basis, which was nearly the same as the first half of the year. Mortgage debt was flat while consumer credit doubled its pace of growth. Research by the New York Fed found that incomes are rising faster than debts in the aggregate, which means consumers can service that debt.

Delinquencies have moved up this year but remain below pre-pandemic levels. Increases are driven by a rise by subprime borrowers. However, the moratorium that allowed student loan defaults to not be counted lapsed on October 1. Student loans were the largest driver of delinquencies and defaults in the 2010s. They are easier to service, as they are more closely linked to incomes than in the past and forgiveness was accelerated under the current administration.

A rising stock market drove household net worth to a new record high.

Bottom Line

A rising stock market drove household net worth to a new record high in the third quarter of the year. The strength in consumer balance sheets helped buoy consumer spending and GDP growth. We expect slower growth in the fourth quarter. A December rate cut is all but a done deal for financial markets. The debate over whether to cut in December will be heated but will likely occur. The Fed will slow the pace of rate cuts moving forward; we now forecast three cuts by year-end 2025, down from five a month ago.