January 16, 2023

Interest rates are up, and the stock market is down. Perhaps we shouldn’t be surprised then that America’s net worth plunged in 2022, per Federal Reserve data. The descent is primarily due to weakness in the economy earlier this year and a bear market in stocks.

American household and non-profit net worth fell by $400 billion in the third quarter, down to $143.3 trillion. The value of household stocks alone declined by $1.9 trillion. And this is after a $6 trillion drop in the second quarter, which was also driven by depressed stock prices.

Of course, this all signals that the mid-2020 party of skyrocketing home prices and equally moon-bound stock values is over. The flow of cheap money has stopped, and the ripple effect has been large. At the end of 2020, American net worth stood at $150.1 trillion. This year, it’s declined each quarter so far.

All that said, many Americans are still better off than they were several years ago (a point also made by billionaire businessman Charlie Munger recently). We can thank appreciating real estate values for this. It’s kept consumers spending, even though inflation has made everything more expensive.

Where the wealth train goes remains to be seen. It’s still possible, and perhaps even likely, that we’ll hit a recession this year. In any case, what matters most is the severity of the recession, not whether it occurs.