During covid-19, most Americans got richer, especially the wealthy

U.S. households added $ 13.5 trillion in wealth last year, according to the Federal Reserve, the largest increase in records in three decades. Many Americans of all stripes have paid off their credit card debt, saved more money, and refinanced themselves into cheaper mortgages. This called into question the conventions of previous economic downturns. In 2008, for example, American households lost $ 8 trillion.

In some ways, the singularity of the Covid-19 recession – and the recovery – should come as no surprise. The scale of the pandemic was unprecedented in the modern era.

The same goes for the government’s financial response. The United States has borrowed, loaned and spent trillions of dollars to keep the economy from plunging further than it has.

These actions were at the heart of the unusualness of the recession and the recovery. They also fueled much of the unexpected boom in the stock market. Lower interest rates have attracted more investors to stocks; workers stuck at home tried their hand at trading, and tech giants gained even more traction during the shutdown.

The stock market, in turn, became the engine of the increase in household wealth, accounting for almost half of the total increase.

This has produced an imbalanced distribution of wealth gains, since better-off households are more likely to own stocks. Over 70% of the increase in household wealth went to the top 20%. About a third went to the top 1%.

The gains were even more concentrated at the top when Americans were grouped by wealth rather than income. (Wealth is calculated by subtracting a household’s debt, like mortgages and college debt, from assets like homes and stock market investments).

Home orders sent the economy into free fall at the start of the pandemic, but the shock was short-lived.

Americans with high-income jobs have done particularly well. Many white-collar workers were able to work from home and saved money by not traveling or eating out. Government stimulus checks and expanded unemployment benefits have kept restaurant waiters, housekeepers and others afloat in low-paying service jobs that have been laid off.

Many low-income workers have emerged victorious. By October 2020, for example, the current account balances of households of the poorest 25% had increased by about 50% from the previous year, according to the JPMorgan Chase Institute. But much of the increase in their wealth has come in the form of stimulus checks and unemployment benefits, which will run out as the economy recovers.

And many low-paying jobs are still missing. As of April 2021, jobs paying more than $ 60,000 had increased by about 2% from January 2020 levels, according to Opportunity Insights, a research group based at Harvard University. Jobs paying less than $ 27,000 had fallen by almost 24%.

The Americans who earned the most in 2020 were the ones who started off with much more wealth. Homes, stocks and retirement accounts – which wealthier people are more likely to own – have appreciated in value, and these increases are expected to continue.

Initially, economists did not expect it to turn out this way. For example, when the pandemic first hit the United States, stocks soared.

Then the Fed lowered interest rates to near zero, launched a series of emergency loan programs, and began to buy public debt on a large scale. Investors crowded into stocks, no longer fearing the credit markets would freeze. A handful of tech giants, enjoying a home economy, have carried the entire market higher.

In the second half of the year, the S&P 500 broke new records 33 times. The rise in stock prices accounted for nearly 44% of the overall growth in household wealth in 2020.

Instead, house prices, which are likely to fall in the event of economic setbacks, have soared. Houses were already scarce, but the pandemic boosted demand and made the shortage more acute.

The median selling price of an existing home surpassed $ 300,000 last year for the first time and continued to soar, surpassing $ 350,000 in May. The price gains and low rates have been a boon to homeowners, many of whom have pocketed money from their homes or saved money by refinancing themselves into lower interest rates.

Soaring prices have also made home ownership out of reach for many low-income and first-time families. Economists expect price growth to moderate in 2021, but not home prices to fall.

Meanwhile, the aid that has helped Americans get through the past 15 months has started to wane. States have started to cut unemployment benefits. Three months have passed since the last round of stimulus checks. Measures allowing borrowers to defer mortgage and student loan payments are expiring.

Those who missed out on wealth creation during the pandemic will be less equipped to deal with the next major strain on their finances. In 2020, more than a third of adults said they might not be able to cover a sudden expense of $ 400 in cash, according to the Fed.

This story was posted from a feed with no text editing

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