Soaring Stock, Home Prices Will Help The Economy Recover

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There’s no crisis this time. Photographer: Justin Sullivan/Getty Images North America Photographer: Justin Sullivan/Getty Images North America A paradox of this economic crisis is that while U.S. employment remains 13 million below its pre-pandemic peak, the net worth of American households may be at a record high, thanks to the […]

There's no crisis this time.

Photographer: Justin Sullivan/Getty Images North America

A paradox of this economic crisis is that while U.S. employment remains 13 million below its pre-pandemic peak, the net worth of American households may be at a record high, thanks to the soaring prices of stocks and homes.

This doesn’t discount the need for fiscal relief for workers and small businesses that are struggling, but it’s an important difference from the recovery that followed the 2008 financial crisis. Then, households spent five years repairing their balance sheets. They largely won’t have to do that again this time. That could help fast-forward the economic expansion once the public-health crisis ends.

The components of household net worth that fluctuate are largely based on the stock market and home prices. During the 2001 recession housing was largely stable, but stocks took a few years to recover. So net worth was mostly flat until 2003, when it started increasing again as stocks rebounded and housing gathered steam. 

The recovery after 2008 took longer. Home prices crashed, taking home equity cushions with them, and it took years for them to regain lost ground. Bruised investment portfolios followed a similar trajectory. After peaking in 2007 it took household net worth five years to rebound, and that’s just in the aggregate; it doesn’t account for the inequality that resulted, with home values in working-class and non-white neighborhoods lagging behind those in wealthier and well-educated neighborhoods.

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