Household buying power exploded by $2.3 trillion in 2012, the biggest increase since 2005, led by a surge in homeowners' equity, according to a report by Deutsche Bank.
The firm calculates the metric by adding household cash flow (income minus taxes), home equity and consumer credit. It uses the recently released data in the Federal Reserve's fourth quarter Flow of Funds report.
"At minimum it should underpin the gains in consumer spending we are projecting in the quarters ahead," said Joe LaVorgna, Deutsche's chief U.S. economist. "If the labor market builds upon its recent momentum, this will further lift demand for housing, thereby pushing home prices and household buying power even higher."
Homeowner's equity made up the bulk of the fatter wallet consumers may be feeling today, jumping a whopping $1.6 trillion. Household cash flow was up a net $603 billion, according to Deutsche, and consumer credit added another $42 billion to buying power.
The report said it calculates "buying power" this way because "households can consume through current cash flow or they can borrow" using credit cards or home equity lines of credit.