American household net worth just saw its highest quarterly decline since the Great Recession that rocked the economy roughly a decade ago.
CNBC reported Thursday that the average household net worth dropped precipitously by $3.7 trillion in the fourth quarter of 2018, which was the biggest drop since the fourth quarter of 2008, when household net worth dropped by six percent.
To be clear, average household net worth is still 73 percent higher than it was in 2009, at the height of the Great Recession. This is mostly due to the fact that most Americans’ net worth is in homeownership, and home prices are still high throughout most of the country. However, the statistic that ended up predicting the Great Recession in 2006 suggests another recession may be around the corner, due to another potential crash in the housing market.
In October 2018, the Economic Cycle Research Institute’s (ECRI) home price index had its lowest rate of growth since 2009, and has been showing negative growth since April 2018. ECRI’s home price index showed a similar pattern in 2006, just before the burst of the subprime mortgage bubble. While other financial forecasting firms’ home price indices are not yet in the negative, they have been showing a pattern of consistent decline.
Southern California home sales in particular have plummeted in the last several months. The Orange County Register reported in October that in the period from October 2017 to October 2018, home sales fell by 17.8 percent. That marked the biggest decline in home sales since October of 2010, when the U.S. economy was still reeling from the financial crash of 2008. The California Association of Realtors found that sales dropped by as much as 21.8 percent in Orange County.
One contributor to the decline in home sales and lackadaisical growth in home prices could be attributed to the Republican tax cuts of 2017, which made big changes to both mortgage interest and property tax deductions. In the long run, Business Insider argues, this could make homeownership less attractive. This could, in turn, lead to fewer people buy homes, resulting in home prices declining — along with the net worth of the average American household.
However, while average American household net worth saw a steep decline, quarterly profits for American corporations have never been better. Using data from the third quarter of 2018 — the latest available period — corporate profits are once again at a record high. Profits have seen a steady rate of quarterly growth since 2017, and show no signs of slowing down despite underwhelming stock market gains in the latter part of 2018.
Tom Cahill is a contributor for Grit Post who covers political and economic news. He lives in Bend, Oregon. Send him an email at tom DOT v DOT cahill AT gmail DOT com.