From the data collected, evidence shows that American homeowners are starting to make use more of their equity with a substantive figure of $48 billion in equity withdrawals recorded in the third quarter of 2024 which is the highest in a record of two years which signifies a turning point from the approach that home owners had adopted after the onset of the development of the Federal Reserve’s increment of interest rates in 2022. However, with the outlook improving, homeowners still remain wary of their borrowing appetite, only managing to withdraw a mere 0.42% of the available tapeable equity, which is way lower than the norm in the decade before the fed hiked rates.
American homeowners are sitting on a gargantuan sum of total $17th trillion in net worth, out of which, only $11 trillion is net qualifiable. Nowadays, based on different surveys of mortgage holders, after repaying the debt, people have around $319 000 worth of equity in their homes, $207 000 of which borrowers can fetch provided there is an only 20% margin required by the majority of the lending institutions. This huge figure of equity remains untouched, market analysts are of the opinion that in the last two years approximately five hundred billion dollars’ worth of money has been trapped, which is very different from the fairly normal market environment.
A major contributing factor to this wait-and-see strategy is the higher borrowing costs that come with home equity lines of credit (HELOCs), which are sensitive to the Fed’s rate changes. The monthly payment for a $50,000 HELOC has increased by more than 150% since March 2022, rising from approximately $167 to $413 in January 2024. However, the recent cuts in interest rates have eased these conditions to some extent, as the payment is anticipated to remain below USD 300 per month provided that additional rate cuts become effective by late 2025. Although it is still higher than that in the past two decades, this drop may motivate some individuals to consider their equity better.
With home price increases easing, in addition to a growing supply, sellers in the market have less pricing power, making home equity an appealing alternative for homeowners looking to finance home improvement, educational or other major expenditures. Yet, it is not clear whether this change will cause wider changes in the way consumers behave.
