In estimating disposable income, the government does not include profits from stock sales, but it does include taxes paid on capital gains. The result, particularly in a year of surging stock prices, is that economists understate income and low-ball savings. Even so, many Americans are using rising stock prices as a substitute for thrift, a potentially disturbing trend. During the past six years, household debt has increased faster than income. But the higher markets go, the riskier they become.
Home equity hits.
Feeling flush from stock market gains, many Americans, for example, feel confident about borrowing against the equity in their houses. He calculates that mortgage debt is now equal to at least 40 percent of middle-income household assets, up from 29 percent in 1989. Rising stock prices also allow home buyers to qualify for larger mortgages than they otherwise could. For example, Fannie Mae, the nation's largest mortgage holder, uses formulas that take into account the market value of a home buyer's stock portfolio, according to Senior Vice President Michael J. Williams. For now, most Americans appear perfectly capable of servicing their growing debts.