WASHINGTON - America as a whole has regained all the household wealth it lost to the Great Recession and then some, thanks to higher stock and home prices.
The average household still has a long way to go.
U.S. household wealth jumped $3 trillion to $70 trillion in the January-March quarter this year, the Federal Reserve said Thursday. That topped the previous peak of $68 trillion in the third quarter of 2007, just before the recession began.
Yet because of inflation and a rising population, the average household has recovered only about 63 percent of the wealth it lost, according to calculations by the Federal Reserve Bank of St. Louis. Affluent households have benefited most because most of the recovered wealth has come from higher stock prices. The wealthiest 10 percent of Americans own about 80 percent of stocks.
The recession cost Americans $15.6 trillion in wealth.
Average household wealth, adjusted for inflation, was $539,500 at the end of last year, according to the St. Louis Fed. Yet most households own less than the average, which is skewed by how much wealth belongs to the most affluent.
"Most families have recovered much less than the average amount," the St. Louis Fed report says.
Household wealth, or net worth, reflects the value of assets like homes, stocks and bank accounts minus debts like mortgages and credit cards.
For America as a whole, higher home values and stock prices have helped create a "wealth effect." This occurs when rising wealth gives Americans the confidence to spend more. The economy benefits because consumers drive about 70 percent of U.S. economic growth.
National home prices have been rising steadily since last summer, though they remain about 30 percent below their 2006 peak. Stocks have more than doubled since they bottomed in 2009, and stock averages hit record highs last month.
The Fed's low-interest rate policies have been intended to support both the housing and stock markets.
The Fed's policies have helped keep mortgage rates near record lows to encourage home purchases. They've also pushed bond yields fell so low that many Americans have shifted money out of bonds and into stocks. The resulting higher stock prices have helped boost household wealth.
But the distribution of the wealth has been uneven. Such wealth disparities mean "a smaller fraction of the population is near the average," says Dana Saporta, an economist at Credit Suisse.
Over the past five years, inflation has eroded about 10 percent of America's regained wealth. And the number of households has increased 3.8 million to 115 million from the third quarter of 2007 through the end of last year. So the regained wealth is now divided more broadly.
Rising stock prices accounted for nearly two-thirds of the rebound in wealth through the end of 2012, the St. Louis Fed report estimates.
The increase in stock prices has extended well into 2013, despite sharp declines the past two weeks. In the January-March quarter, gains in stocks and mutual funds accounted for about half the nation's $3 trillion increase in wealth. Rising home prices made up about one-fourth. The rest came from higher pension fund reserves, greater ownership of cars and other goods and lower debts.
Homes accounted for two-thirds of middle-class assets before the recession, estimates economist Edward Wolff of New York University. Stocks made up just 7 percent. Roughly half of Americans own stocks, directly or through mutual funds. But most of their holdings are small.
As wealth has risen this year, many people have chosen to save less of what they earn and keep spending. Americans saved just 2.5 percent of their income in the first quarter. That compared with about 4 percent last year.
"People feel wealthier, so they're happier to spend more," says John Calverley, head of macroeconomic research at Standard Chartered Bank.
"There is also a broad confidence effect. It's not just in terms of consumers. Businesses see a higher stock market and feel more confident about investing."
Economists worry that with more wealth accruing to richer households, the wealth effect may be muted. That's because affluent Americans are less likely to spend additional wealth than middle- and lower-income Americans are.
On the other hand, richer households drive a disproportionate amount of consumer spending. So their recovered wealth will still likely boost overall spending.
Fed policymakers "are relying on the wealthy to spend and send their resources trickling down through the economy," Saporta says.