The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
Note: This report is also available as a PDF.
No. 1 in the Opportunity and Ownership Facts series
Over the last two decades, American households
have generated healthy increases in wealth, but
only modest increases in income. According to the
Federal Reserve Board's Surveys of Consumer
Finances (SCF), between 1983 and 2004, middleincome
households (between the 40th and 60th
percentiles) gained only about 20 percent in gross
income, or an average of less than 1 percent per
year1. However, their net worth--the value of what
they own minus the value of what they owe--
jumped by over 100 percent, a rapid growth of 3.35
percent per year. These families' debt rose by
$40,000 (over 200 percent), but it
was overshadowed by a $140,000
increase in assets.2
Nearly 40 percent of this
increased net worth came from
the housing market. Mortgage
debt rose about $30,000, but home
values increased by $70,000. Some
gains in housing wealth resulted
from rising homeownership rates;
the share of middle-income
households owning homes
increased from about 60 percent
in 1983 to 71 percent in 2004.
Liberalized lending policies
played a role in expanding debt.
Using more sophisticated technologies
to price credit based on
individual risk factors and characteristics,
banks and other lenders can now loan capital to more risky customers,
albeit at higher interest rates than prime
loans. From 1994 to 2003, the subprime mortgage
market grew explosively, rising by an astonishing
25 percent each year.
Still, over 60 percent of the gain in net worth--
or about $60,000--resulted from the appreciation
and ownership of financial assets, net of consumer
and other non-mortgage debt. Nearly all net additions
to middle-income borrowing were added
mortgage debt.
Notes
1. Data from the Current Population Survey, however, show
annual household income growth for this middle-income
group at 1.3 percent per year. Some evidence suggests
increased undercounting, since national income account data
reveal yearly growth of 1.8 percent in disposable income, 1.7
percent in compensation, and 1.6 percent per year in wage
and salary income (all per household).
2. Since 1989, the Federal Reserve Board has conducted the SCF
every three years to measure income, assets, and liabilities.
Asset data include bank accounts, mutual funds, stocks, and
401(k) and other defined contribution pensions, as well as
automobiles, businesses, and homes (generally the most valuable
household asset). The SCF excludes most consumer
durables such as furniture or appliances, the current value of
defined benefit pensions, and future Social Security payments.
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