IMF Survey: Households Hit Hard by Wealth Losses

IMF News, June 24, 2009

Source details

The financial crisis has erased a considerable amount of household wealth in many advanced economies.
The precipitous fall in asset prices—across equity, bond, and housing markets—has eroded the value of financial and housing assets and the net worth of households, according to IMF research.
Recent wealth losses have depressed consumption and contributed to rise in savings rate.

During the first three quarters of 2008:
- Household financial assets decreased by about 8 percent in the United States and the United Kingdom.
- Household financial assets decreased by close to 6 percent in the euro area.
- Household financial assets decreased by 5 percent in Japan.
As global equity markets plunged in the last quarter of 2008:
- Household financial wealth declined further—for example, by an additional 10 percent in the United States.
Housing assets also deteriorated in line with falling house prices, especially in the United States and the United Kingdom.

Household net worth (total assets minus financial liabilities) rose substantially in the four largest advanced economies during 2002–06.
Gross financial and household wealth (as a percent of disposable income) increased by more than 100 percent in the United States, euro area, and the United Kingdom.
Asset composition and relative vulnerabilities:
- Gross household wealth is more dependent on housing assets in the United Kingdom and euro area.
- Gross household wealth is more dependent on financial assets in the United States and Japan.
- Japanese households hold a large share of deposits among their financial assets.
- In relative terms, U.S. households were more vulnerable to equity price shocks and U.K. and euro area households to house price shocks.
Indebtedness and leverage:
- Households generally became more indebted in advanced economies other than Japan; financial liabilities rose as a percent of disposable income, net financial assets, net worth, and household deposits.
- Household financial liabilities relative to net worth remained broadly unchanged in Japan and rose moderately in the euro area.
- Household financial liabilities relative to net worth increased substantially in the United Kingdom and the United States—from about 17 percent of net worth in 1999 to more than 28 percent at end-2008.

The destruction of wealth is likely to contribute to a rise in the household saving rate and weakness in consumption in advanced economies, especially in the United States and the United Kingdom, where the decline in net worth has been the largest so far.
Estimated 2008 household wealth losses and composition:
- United States: about $11 trillion in total losses ($8.5 trillion in financial assets and $2.5 trillion in housing assets).
- United Kingdom: estimated $1.5 trillion in total losses ($0.6 trillion in financial assets and $0.9 trillion in housing assets).
Potential long-run impact on the saving rate from these losses (depending on the assumed marginal propensity to consume):
- United States: in the range of 2½–9 percentage points.
- United Kingdom: in the range of 3¼–11¼ percentage points.

IMF Survey: Households Hit Hard by Wealth Losses — Petya Koeva Brooks, IMF Research Department, June 24, 2009