Market Extra: Coronavirus cash cow? The least wealthy got the biggest boost in an upside-down year

Market Extra

Last Updated: Dec. 31, 2020 at 2:38 p.m. ET

First Published: Dec. 31, 2020 at 11:14 a.m. ET

Surging real estate prices, plunging mortgage rates, and a generous fiscal boost helped households in the middle of the coronavirus emergency

Did the value of housing help boost Americans’ wealth? Credit: Issi Romem 

In July, MarketWatch shared a chart from the St. Louis Federal Reserve showing that in the first quarter of the year, when the coronavirus crisis whacked markets and households, it whacked the wealthiest the most. A little bit of karma, we suggested, in a year where the most vulnerable Americans were facing some of the harshest consequences of the pandemic.

Earlier coverage: Coronavirus cold comfort: the top 1% lost more wealth in Q1 than the rest of us Now, the St. Louis Fed’s FRED researchers are back with an update. In the second quarter of the year, they found another “cold-comfort” way to look at the economic data. In their words, “the least wealthy gained the most net worth.”

How did that happen? Some definitions are in order. In this case, “least wealthy” refers to the bottom 50% of households. Some Americans in that category may never think of themselves as “least wealthy,” but as the FRED chart shows, everyone in the bottom half of the country’s wealth percentiles has as much wealth as everyone in the top 1%. With that in mind, consider some of the other unexpected outcomes of 2020. Home prices have surged, meaning the amount of home equity Americans — including those “less wealthy” ones — has also climbed. That’s shown in the graph below.

There’s another important reason though for the gains by the “least wealthy”. The unprecedented fiscal stimulus Congress enacted in the early days of the crisis helped many Americans cushion their savings. The chart below shows the surge in the personal savings rate thanks to that aid package in March.

Finally, as mortgage rates keep dropping — see below for a visual — many Americans have taken the opportunity to refinance, which means they’re responsible for smaller debt service payments every month.

As always, this kind of trend covers so much ground it requires a few caveats. Surging home prices benefit owners, not would-be buyers. The better-off generally get better refinance terms than those who could really be helped by a lower monthly payment. And it’s only people who have steady income already who can afford to sock money away. Perhaps the most poignant takeaway, however, is the fact that quick action in the early days of the pandemic helped American households in the middle of the year. The long delay for a second round of stimulus, and the eventual passage of a measure this week which many analysts think is too stingy, may show a very different picture of household wealth in the future.

                  

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