U.S. household wealth fell for the first time in two years in the first quarter of this year, as the drop in the stock market overwhelmed gains in home values, according to a report by the Federal Reserve.
After seven straight quarters of record growth, the Fed said household net worth edged down by $500 billion to $149 trillion. The drop was driven by a $3 trillion drop in the value of stocks, and was partially offset by real estate values that climbed another $1.6 trillion.
The Fed said this marked the first decline in household wealth since the first quarter of 2020, when the beginning of the pandemic battered financial markets and caused a short but steep recession.
The Fed also noted that household debt increased to $18 trillion, up by 8.3% in the first quarter. Mortgage and credit card debt also grew. Still, the report showed household balance sheets remained healthy in the first quarter and look likely to continue to support strength in consumer spending even in the face of high inflation and rising debt.
The Fed said bank account balances rose, with checking deposits rising about $210 billion to $4.47 trillion and savings accounts up by about $90 billion to $11.3 trillion. The added cash may help support consumer spending even as the Federal Reserve seeks to slow the economy and curb inflation by hiking interest rates.
"The fact that household wealth is declining at the same time interest rates remain persistently high will add more pressure on consumers, who have very little confidence right now," stated Caleb Silver, Editor-in-Chief of Investopedia.