Research company TNS said today that the number of American millionaire households is on the rise. According to an annual survey, the number of households with more than one million dollars ($1m) in net worth (excluding primary residence) rose in 2005 for the third consecutive year. This increase is due to long-term wealth accumulation, not new wealth creation or real estate investments (while real estate continues to be an investment portfolio staple, it is not the sole cause of wealth).

Forty-six percent of millionaire households own investment real estate such as a second home, third home, rental properties and undeveloped land. Thirty-four percent have a first mortgage on these residences and 25 percent have second mortgages on these additional residences.

With the increasing number of millionaire households, comes an increasing confidence as over threequarters of high-net worth households feel they will be financially prepared for retirement,” said Jeanette Luhr, manager of the research study. “These millionaire households understand that calculated risks are still a necessity within their portfolio design, however, over 50 percent have become much more conservative in their investment approach over the past year.”

These millionaires have been able to capitalize on their measured planning and active reinvestment to take advantage of economic changes over the past several years, such as the decrease in the average debt. Seventy percent of millionaire households own investments in stocks and bonds, 68 percent in mutual funds, and 58 percent in regular or Roth IRAs.

The number of millionaire families rose to 7.1 million in 1999, said Luhr, and then, after the Internet bubble burst, dropped steadily to 5.5 million by 2002. The ranks of millionaire households rose to 6.2 million in 2003 and 8.2 million in 2004, she said.

Federal Reserve says average real income of American families fell 2.3% in 2001-2004; Median income at $43,200

The average income of American families, after adjusting for inflation, fell by 2.3 percent in 2004 compared to 2001 while their net worth rose but at a slower rate.

The Federal Reserve reported last month that the fall in inflation-adjusted incomes left the average family income at $70,700 in 2004. The median, or point where half the families earned more and half less, did rise marginally in 2004 after adjusting for inflation to $43,200, up 1.6 percent from the 2001 level.

The median, or midpoint for net worth increased by 1.5 percent to $93,100 from 2001 to 2004. The pace of growth was far below the 10.3 percent gain in median net worth from 1998 to 2001, a period when the stock market scaled record highs before begining to fall in early 2000.

The Federal Reserve Board’s Survey of Consumer Finances for 2004 provides insights into changes in US family income and net worth since the 2001 survey.

The survey shows that, over the 2001–4 period, the median value of real (inflation-adjusted) family income before taxes continued to trend up, rising 1.6 percent, whereas the mean value fell 2.3 percent.

Patterns of change were mixed across demographic groups. These results stand in contrast to the strong and broad gains seen for the period between the 1998 and 2001 surveys and to the smaller but similarly broad gains between the 1995 and 1998 surveys.

Much like median income, median real family net worth in the 2001−4 period increased 1.5 percent, but mean net worth rose 6.3 percent. The increase in wealth appears to have been clearest in the middle income group. Over many other demographic groups, the data show a complex pattern of mixed increases and decreases in wealth; in some instances, median and mean values moved in opposite directions, a pattern that signals distributional changes within groups. In contrast, the growth in wealth between the 1998 and 2001 surveys and between the 1995 and 1998 surveys was stronger both in the mean and in the median, and the growth was shared by most demographic groups.

Three key shifts in the 2001–04 period underlie the changes in net worth. First, the strong appreciation of house values and a rise in the rate of homeownership produced a substantial gain in the value of holdings of residential real estate. Second, despite the general recovery of prices in equity markets since 2001, the direct and indirect ownership of stocks declined, as did the typical amount held. Third, the amount of debt relative to total assets increased markedly, and the largest part of that increase was attributable to debt secured by real estate.

As debt rose over the period, families devoted more of their incomes to servicing their debts, despite a general decline in interest rates. Also, the fraction of families with large required debt service payments relative to their incomes rose a small amount, and the fraction of families that had payments that were late sixty days or more in the year preceding the survey rose more substantially. These increases affected mainly the bottom 80 percent of the income distribution.

The survey reviews these and other changes in the financial condition of U.S. families between 2001 and 2004.1 The discussion draws on data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) for those years; it also uses evidence from earlier years of the survey to place the 2001–04 changes in a broader context.

Download report.

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