Fed reports record fall in household net worth

WASHINGTON — The net worth of American households fell by the largest amount in more than half a century of record-keeping during the fourth quarter of last year.

The Federal Reserve said Thursday that household net worth dropped by a record 9% from the level in the third quarter. The decline was the sixth straight quarterly drop in net worth and underscored the battering that U.S. families are undergoing in the midst of a steep recession with unemployment surging and the value of homes and investments plunging.

Net worth represents total assets such as homes and checking accounts minus liabilities like mortgages and credit card debt.

Family net worth had hit an all-time high of $64.36 trillion in the April-June quarter of 2007 but has fallen in every quarter since that time.

The record 9% drop in the fourth quarter pushed total net worth down to $51.48 trillion, about 20% below the second quarter 2007 peak.

After five straight years of sharp increases in home prices, the housing bubble burst in 2007, sending shock waves through the financial system as banks were hit with billions of dollars of losses on mortgages and mortgage-backed securities.

The federal government created a $700-billion rescue fund for the financial system last October, but so far that effort has shown only modest results in getting banks to resume more normal lending patterns.

Households have also been battered by the recession that began in December 2007 and is already the longest in a quarter-century.

That downturn has sent unemployment soaring to a 25-year high of 8.1% in February, with 4.4 million jobs lost since the downturn began.

The Federal Reserve began keeping quarterly records on net worth in 1951.