Tossed and turned: wealth dynamics of U.S. households 2007-2009

For many years, the cross-sectional Survey of Consumer Finances (SCF) has shown relatively weak or inconsistent changes in the shape of the distribution of net worth, despite many shifts in income and other economic factors. In 2009, households that had taken part in the 2007 SCF were re-interviewed to obtain information on the changes in their financial condition over the period of the intervening financial crisis. Looked at as a second cross section, the 2009 data show a pattern of wealth distribution very similar in shape to what had been seen in the earlier cross sections. Between the two years, however, there was considerable variation in the relative positions of households within the wealth distribution. This paper presents data on the changed situation of households and it decomposes the observed wealth changes in terms of underlying portfolio shifts. It is generally recognized that changes in the value of residential real estate, corporate equities and private businesses were important sources of wealth losses. Although the data presented here confirm that picture, they also show a great deal of heterogeneity below the aggregate level. The observed stability of the pseudo-cross-sectional wealth shares in the panel despite the underlying turmoil is largely a consequence of changes in values of businesses and equities among comparatively wealthy households offsetting changes in the value of housing assets among other households.