Household wealth climbs as debt inches higher

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By Steve Goldstein, MarketWatch

WASHINGTON (MarketWatch) — Household wealth climbed in the second quarter while household debt barely budged, continuing a seesaw pattern as outstanding mortgage obligations declined while auto and student debt mounted, according to data released Wednesday.

Household net worth grew by $1.3 trillion, or 1.8%, to $74.82 trillion, owing to gains in prices that boosted house values by about $525 million as well as a boost of nearly $300 billion from gains in the stock market and mutual funds.

Household debt meanwhile rose a seasonally adjusted annual rate of 0.2% in the second quarter, the Federal Reserve said in its voluminous “financial accounts of the United States” report that’s also known by its former name, the flow-of-funds report.

That marks the sixth straight quarter in which household debt has wavered between gains and losses.

The rise in household debt came as consumer credit rose at an annual rate of 5.6%, while home mortgage debt fell 1.7%.

Mortgage debt has dropped in 20 of the past 21 quarters. That’s in part a function of reduced demand after the bursting of the housing bubble, as well as banks forgiving debt, either by mortgage modifications or the more drastic step of foreclosure.

Consumer credit by contrast has gained for the past 11 quarters.

Overall nonfinancial debt grew 3.1% in the quarter, mostly as business debt climbed 6.9%. Favorable bond market conditions and increased willingness by banks to lend have helped spur business lending.

Corporate stockpiles of cash went fractionally down to $1.80 trillion.

The total debt of $41 trillion is about 2.6 times the size of gross domestic product.

Earlier Wednesday, the Commerce Department reported a small rise in durable-goods orders and a gain in sales of new homes.