home prices

Stocks' rising tide floats some boats higher than others

February 28, 2014: 5:00 AM ET

Five years after the market low, the value of Americans' home equity is up sharply, too -- but nowhere near as much as stocks have risen.

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FORTUNE -- We can learn a lot from anniversaries. Consider, if you will, the upcoming fifth anniversary of the bottom of the stock market, which hit its low on March 9, 2009 as share prices plummeted and many holders ran screaming for the exit as predictions of the end of financial and investment life as we had known it filled the air.

Since then, U.S. stocks have almost tripled in value, according to the Wilshire 5000 index, the best measure of the total U.S. market. The value of Americans' home equity is up sharply, too -- but nowhere near as much as stocks have risen. And thereby hangs a little-noticed tale of how people at or near the top of the economic food chain have profited substantially more from the stock and housing rebounds than other people have.

No, this isn't a screed about the evils, real and imagined, of income and wealth inequality. I'm just telling you what the numbers showed me when I decided to compare the rebound in homeowners' equity, which is the biggest source of wealth for broad swatches of Americans, with the rebound of stocks, which is the biggest source of wealth for only a relatively small handful of Americans, primarily those with high net worths. And, I assume, high incomes.

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My wealth numbers come from Federal Reserve surveys of households' net worth. I've tweaked some of the Fed's statistics, which it releases quarterly, to estimate values for stocks on Market Bottom Day in 2009, and for stocks and home equity today. (You can find my methodology at the bottom of this column.)

The Fed excludes mutual funds and retirement accounts from its stock numbers, and I don't think that including them would change the numbers in any meaningful way, given how concentrated stock ownership is. For example, economist Robert Frank of Cornell estimates that 5% of Americans own 60% of all individual stocks.

And here we go.

When last I looked, the Wilshire 5000 -- the broadest measure of the U.S. stock market -- was up about 190% from the bottom. During the same five-year period, the value of home equity has risen by about 40%. That's about $3 trillion, which isn't chopped liver. But it's little more than a third as much as the $8.8 trillion increase in Americans' holdings of stocks (as we're measuring them here).

Five years ago, at the stock market bottom, home equity, at $7.4 trillion, substantially exceeded the value of stocks owned by individuals ($4.4 trillion). Now, stocks are about $13.2 trillion, compared with $10.4 trillion of home equity.

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After bottoming on March 9, 2009, stocks roared up -- by the end of the month, they had risen about 18% -- and have pretty much kept going. Meanwhile, home equity  kept drifting down until the middle of 2012, when it finally turned upward.

Stocks have set one new high after another, while home equity is still down from its peak of $12.5 trillion in 2005. At the time, stocks were $8 trillion, about 65% of home equity. Now, stocks are more than 125% of home equity.

The bottom line: The rising tide in stocks and home equity is floating all boats -- but the boats with lots of stocks in them are floating higher a lot quicker.

Where my numbers come from:

Stocks:

On March 9, 2009, the Wilshire 5000 closed at 84.5% of its value on March 30 of that year. So I subtracted 15% from the Fed's March 30, 2009 stock ownership number to come up with a March 9 number.

Similarly, I compared the Wilshire's value in late February with its value on Sept. 30, 2013, the date of the most recent Fed numbers. The Wilshire has risen about 10% since Sept. 30, so I added about 10% to the Fed's Sept. 30 number.

(I didn't take net purchases and sales of stocks, as reported by the Fed, into account; there are only so many numbers I can cope with without having my head explode.)

The Fed numbers include Americans' holdings of both U.S. and foreign stocks, while the Wilshire measures only U.S. stocks. But I doubt that a more elaborate estimation method than my simplistic use of the Wilshire 5000 would make a substantial difference in the findings.

House equity:

I used the Fed's March 30, 2009 number as my starting point, because I have no idea how to estimate home equity value three weeks earlier. I came up with my current estimate for home equity by taking the Sept. 30, 2013 number, adding $700 billion, and rounding up. That $700 billion assumes that home equity has continued rising since last Sept. 30 at the same monthly rate that it increased between June 30 and Sept. 30.

My stock and equity numbers come from two lines -- corporate equities, and owners' equity in household real estate -- in the Fed's Balance Sheet of Households and Nonprofit Organizations.

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