A Deep Dive Into The Z1 Report: Stocks Rise, Real Estate Falls

The Federal Reserve ‘s Q3 Flow of Funds report tells a very familiar story about what happened during the third quarter – stocks rose while home prices fell. This added up to a net increase of about $1 trillion in the value of household assets, however, the nation is still about $10 trillion back of where it was in 2007, when it still looked as though an economy based on asset prices that never stop rising was still viable.

The central bank data puts the combined increase in the value of corporate equities, mutual fund shares, and pension fund reserves at about $2 trillion while they see home values having fallen by about $700 billion.


Photo: Tim Iacono

As is clear to see in the chart (left), stocks and bonds are having a tough time taking over the leadership role after the housing bubble burst in 2006, unlike the housing market that deftly kept overall asset prices from dropping back when the last stock market bubble burst in 2000.

As for the most recent housing data, the flow of funds report confirms what nearly every other home price survey has revealed in recent months in that a double-dip in property values is now well underway.

As shown below, while the value of household real estate dropped $648 billion from Q2 to Q3, the total outstanding mortgage debt dropped by only $65 billion – good news for bankers, but not good news for homeowners.


Photo: Tim Iacono

Overall, household net worth rose by $1.3 trillion, and the country has Fed chief Ben Bernanke largely to thank for that as talk of more money printing over the summer leading up to the announcement of the $600+ billion QE2 last month is seen as having been instrumental in helping to push share prices higher, something that Bernanke confirmed as being one of the central bank’s goals in a recent Washington Post op-ed.

It now seems that the Fed has three mandates – stable consumer prices, low unemployment, and higher stock prices. While there is debate about the level of success achieved on the first, they continue to fail miserably at the second, but, without question, the Fed is doing quite well at their new third mandate.

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