Economists' Outlook

Housing stats and analysis from NAR's research experts.

2016 Survey of Consumer Finances Takeaway: Income and Wealth Share of 90 Percent of Families Has Declined in Past 27 Years (1989-2016)

The Federal Reserve Board just released the much anticipated 2016 Survey of Consumer Finances (SCF), a survey conducted every three years that collects information about family incomes, their net worth/wealth, and other financial characteristics of families. The survey shows a continuing redistribution of income and wealth to the top 1%, amid falling homeownership, modest gains in income at the lower income group, and large gains in financial returns from an 8-year stock market bull run.

Top 1 Percent Has Gotten More of the Income and Wealth Pie Since 1989

One of the most important findings in the 2016 SCF is the continued redistribution and concentration of income and wealth to the top 1% of families1 during 2013–2016, This continues the trend that began in 1989 since the SCF was collected. Since 1989, the top 1% of the income group has collectively gotten a higher share of the total income pie, the next 9% saw no increase in their share, and the remaining 90% got a smaller share of the income pie (see Figure A below from 2016 SCF Report ).


With cumulative change in prices of 3% in 2013-2016, the chart below shows the bottom 20% had no real income gains, while the second bottom 20% (20-39.9 percentile) saw a modest real growth in income of 2%. On the other hand, the top 10% saw a real income gain of 6%.

med income

The same picture holds true in terms of the wealth gains by wealth groups. Figure B below (from 2016 SCF Report) shows that the wealthy top 1% have increasingly gotten a larger share of total wealth since 1989, the next 9% saw no change in their collective share of total wealth, while the remaining 90% saw their wealth decline dramatically. Clearly, there has been a perverse and inequitable distribution of income over the last 27 years.


Percentage of Families Owning Primary Residence Has Declined Since 1989

One reason for the decline in the share of wealth among the bottom 90% is the decline in percentage of homeowner families. The 2016 SCF shows that the share of non-financial assets, which includes residential property, has generally declined since 1989. Non-financial assets still account for the bigger portion of the total assets of all families, at 57.5% in 2016, but the share has fallen since 1989, when the share hit a high of 69.5%. The housing boom brought the share up to 66%, but it has continued to decline since 2007 in the wake of the Great Recession and collapse of the housing market.


Primary residence and other residential properties accounted for 60.2% of non-financial assets in 2004, but the share of residential property has declined since the housing market collapse, to 53.3% in 2016. The share of residential asset holdings has declined even as home prices have climbed back up strongly. Based on the Case-Shiller national price index, home prices were up by 42% by the second quarter of 2017 compared to the levels in the second quarter of 2011 when prices hit rock bottom. In part, there are also fewer homeowners because home prices have increased more steeply than income.

distribution assets

Ability and Desire to Own/Save for a Home Declined During Great Recession, But Appears to Be on the Rebound

The 2016 SCF data shows that less than half of renters save, and that renters are less likely to save than homeowners. The Great Recession and conditions eight years since, have made it even more difficult for renters (and homeowners) to save. Moreover, the intention to save to buy a home was eroded in the wake of the housing crisis. In 2004, 4.7% of respondents reported that buying a home was the most important reason for saving, but this declined to 3.1% in 2013.

However, the desire to save, and to do so for a home purchase appears to have turned a corner in 2016. A slightly higher percentage of renters (and owners) reported saving in 2016, and a higher fraction of those who saved did so for a home purchase. This may, in part, be explained by the improvement in the economy marked by sustained job growth and improvement in incomes, although at a modest pace.


Non-financial Wealth Gains

The wide gap in financial asset holdings across income groups also explains the increasing concentration of income as the fraction of families holding financial assets increase the higher the income group. Retirement accounts are the most prevalent form of financial holdings across income percentiles, followed by the cash value of life insurance, then stocks, then pooled investment funds. Nearly 92% of families in the top 10% own retirement accounts, while only 11% of those in the bottom 20% own these accounts. Meanwhile, 46% of families in the upper 20% own stocks compared to 34% or less for those in the bottom 40th percentile group. The median value of assets held by all families is $23,500, a drop in the bucket compared to the $818,000 held by the top 10%.


The effect on wealth and income distribution from holding these financial and non-financial assets are considerable, particularly for financial assets. In the chart below, I rebased the stock, house price, and consumer price indices and the household median income to their annual average value in 2007 so I get the growth rate based on the same year. As shown in the chart below, the stock market has been on a tear since 2009, with the value up by 36%. Meanwhile, housing prices have just recovered in 2016. Median household income rose by only 1% as of 2016 compared to 2007, slower than the change in prices during this period of 2%.


In summary, holdings to financial and non-financial assets and the slow growth in incomes explain the continued concentration of income to the upper income groups since 1989. The decline in homeownership had a significant effect. However, the economic conditions continue to improve, and more households have a desire to save for a home purchase. Any improvement in home ownership will help in redistributing wealth back away from the top 1%.

1 In the SCF, the family is the primary economic unit which includes the economically dominant individual or couple and all others who are financially dependent.