The average American's financial situation improved during the third quarter, according to data released by the ""Federal Reserve"":http://www.federalreserve.com. The news is seen as a positive sign for[IMAGE]
the nation's mortgage markets, which have been stressed by an elevated number of borrowers who've been struggling to fulfill their mortgage obligations because of deteriorating personal finances.
The U.S. central bank's latest ""Flow of Funds"":http://www.federalreserve.gov/releases/z1/Current/z1.pdf snapshot shows that household wealth grew by 2.2 percent, or $1.2 trillion, during the July to September timeframe. With the quarterly increase, household net worth-the difference between the value of assets and liabilities-was an estimated $54.9 trillion at the end of the third quarter, as gains in stock markets offset losses in the housing sector.
[COLUMN_BREAK]Real estate assets lost an estimated $700 billion in Q3 as home prices began to fall again, but that was countered by a $1.9 trillion comeback in the value of financial assets as a result of strong improvements in stock holdings.
Gregory Daco, U.S. senior economist for the research firm ""IHS Global Insight"":http://www.ihsglobalinsight.com says since the beginning of 2010, household net worth has recovered $1.1 trillion. He says the boost should give U.S. consumers additional confidence.
At the same time, the Fed's data show that Americans continued to pay down their debt, for the tenth consecutive quarter. Household debt contracted by 1.7 percent, as consumer credit decreased by 1.5 percent and mortgage debt retracted by 2.5 percent. Daco says the numbers imply that the extension of new mortgage credit remains below principal repayments.
Daco said, ""Looking ahead, we expect household net worth to keep its momentum. Stock markets have been moving upwards since early September. As such, financial gains should offset real estate losses resulting from lower housing prices and very weak sales. As employment and confidence continue improving, consumer and business spending should provide support for real GDP growth.""
Residential real estate continues to weigh heavy on household wealth. The Fed's latest report shows that the value of homeowner equity in the third quarter was $6.4 trillion, 52 percent below equity levels four years ago.