Appreciating Homes Increase Owners' Net Worth

By: Rafael Gerena-Morales and James R. Hagerty: REALTOR® Magazine Online
As their homes increase in value, American home owners’ total net worth also soars.

U.S. households' total net worth rose 2.3 percent to $52.11 trillion as consumers took on slightly less debt in the last three months of 2005, the Federal Reserve reported in its quarterly "flow of funds" data. Net worth measures household assets minus liabilities.

For all of 2005, household net worth grew about 8 percent. But the gains in wealth weren’t evenly distributed. Lower-income people carry more debt and that makes it more difficult for them and more vulnerable to a weaker housing market, says Diane Swonk, chief economist at Mesirow Financial in Chicago. "We have a bifurcated consumer," she says.