Yours truly had a memorable series of exchanges with MarketWatch Washington Bureau Chief Rex Nutting roughly 18 months ago. At one point, he appeared to reveal an expectation (otherwise, why provide a graph of it?) that home prices might actually fall like the NASDAQ did from 2000-2002 -- which, for the record, was almost 78%, from a peak of 5048 in March 2000 to a trough of 1114 in October 2002). He also described the housing market, which was still advancing nicely, as "in a free-fall."
Given the history, we shouldn't be surprised that Nutting pounced on the Fed's latest household net worth report, producing the following (link requires free registration):
Darn it, this is really weak:
- The headline assumes that Americans on the whole were poor even before the fourth quarter drop in household net worth (you can't get "poorer" unless you were "poor" already). This is beyond ridiculous and crosses the line into insulting our intelligence. Poor? Americans are clearly the richest "poor" people in human history. My math shows that the average person in America is worth $190,000 ($57.7 trillion divided by a population of 303 million).
- The subheadline ("net worth down 3.6% in fourth quarter") is flat-out wrong; the text of the article itself tells us that the drop is a "3.6% annual rate." But what's with the annualizing, anyway? The drop in household net worth during the quarter was 0.91%; the only reason to annualize it as Nutting did is to make the decline look worse than it really was.
- Later in the article (not pictured), Nutting got hung up in his terminology underwear, as he erroneously described one-quarter changes in quarter-ending balance-sheet amounts as "annualized" (e.g., total household assets, home-equity loans).
Nutting does make a valid point: The 3.4% increase in household net worth during 2007 is less than the year's reported 4.1% inflation, meaning that real net worth indeed declined during last year. But though he referenced debt growth that took place between 2003 and 2005 (see last paragraph pictured), he "somehow" never got around to telling us what happened to real net worth during the previous 4 years.
So I will, first showing current-dollar results, followed by those same results adjusted for infation, expressed in 2007 dollars:
Real household net worth increased almost 28% between 2002 and 2006, before falling back a "whopping" 0.7% in 2007.
Poorer, schmoorer, Rex.
Cross-posted in slightly expanded form at BizzyBlog.com.