WASHINGTON (Reuters) - The net wealth of U.S. households rose in the third quarter to its highest since late 2007, providing a hopeful sign for future consumer spending.
Net financial wealth grew $1.72 trillion to $64.77 trillion, the Federal Reserve said on Thursday.
That left household wealth $1.2 trillion short of where it stood in the fourth quarter of 2007, just as the economy was sinking into a severe recession. Wealth peaked at $67.3 trillion in the third quarter of that year.
Rising home prices helped drive the increase in the latest quarter. The value of real estate owned by households rose about $300 billion, the Fed said. Stock holdings climbed by about $520 billion.
Increases in wealth could make consumers feel more comfortable spending their money. Many economists think consumers spend a few cents of every dollar they gain in wealth.
The data, part of the Fed’s quarterly Flow of Funds report, also showed Americans continued their four-year-old effort to shed debt.
Households cut debt at a 2 percent annual rate in the third quarter, the steepest drop since the second quarter of 2011.
Household debt fell $65.5 billion to $12.87 trillion. That reversed a small gain logged over the prior three quarters, a possible sign that households still feel they need to cut debt.
A housing bubble led household debt to soar in the first half of the last decade, peaking as a share of families’ income in 2007.
After the housing bubble started to deflate in 2006, the country went through its deepest recession since the Great Depression and households have been shedding debts since 2008 by taking out fewer mortgages or defaulting on loans.
In the third quarter, total household liabilities were 112.7 percent of after-tax income during the third quarter, the lowest since 2003 and down from 113.4 percent in the second quarter.
Economists are divided over how much further households have to go in this deleveraging process. Further debt reduction would leave less money for spending, slowing the wider economy.
While total debt as a share of income remains historically high, one measure kept by the Fed has shown that monthly debt payments as a share of income in the second quarter were at the lowest since 1993.
Reporting by Jason Lange; Editing by Nick Zieminski, Tim Ahmann and James Dalgleish