Homeowners: Cash in on all-time high equity

I came across a CNBC story recently about homeowners and the $14.4 trillion in equity they’re about to be able to dig into. New research, according to the article, suggests that home equity is about $1 trillion higher than its peak in 2005 before the Great Recession.

With interest rates rising on consumer debt, the article states, home equity loans or lines of credit could be an appealing option for consumers looking to borrow money at a lower cost. Homeowners no longer need to refinance just to take out equity. This is the aspect of the story I really want to focus on. First, a graph from the story:

Why consumers tap their home equity

Use
Description
Percent using*
Major expense Take cash out, often for a large expense like home remodeling 91 percent
Debt consolidation Consolidate balances from other accounts 41 percent
Refinance Refinance to get a better rate or term 23 percent
Piggyback Concurrent with a mortgage origination, often used for down payment 4 percent
Undrawn Not used immediately (i.e., a rainy day fund) 2 percent
[Source: TransUnion, CNBC story]
(*Based on 2.4 million home equity loans originated between July 2016 and June 2017)
During the meltdown, people were using their homes like they were ATMs; as interest rates dropped they kept refinancing and taking out money to buy a boat, a big trip, etc., but when equity dropped, or they lost their job, they were in trouble. Use a HELOC (Home Equity Line of Credit) wisely. If it helps you get into a home or remodel a home to add value, it will be a smart decision. And always remember as rates go up, so does the interest on a line of credit.

Let’s talk about Millennials and Real Estate

My sons are Millennials. My Walnut Creek Lifestyle freelance writer is a Millennial. More and more of my clients and colleagues are Millennials, as that generation continues to age into home-buyers.

So, realtors like myself are starting to notice more trends with the market geared toward that age group. It’s a different real estate market for Millennials than it was for their parents – nowadays, they are graduating with huge student loan debts, having trouble finding lucrative work out of college, and then struggling to pay sky-high rents and mortgages once they do get jobs.

That said, Millennials are driving the real estate market right now, which has made the following observations more obvious.

From San Francisco realtor John Solaegui:

  • There is a low inventory of single-family homes in San Francisco
  • Millennial buyers don’t care about parking spaces (though this might be more prevalent in San Francisco – it’s contradicted by the graphic above!) with the rise of ridesharing apps – they’d prefer having decks or gardens for outdoor entertaining
  • Areas like Noe Valley, Glen Park, Bernal Heights and The Sunset in San Francisco are extremely popular with Millennial buyers right now

From the California Association of Realtors’ REALTOR Magazine:

  • Millennials are cashing in on equity at a historic rate, thanks to rising home prices
  • One-third of Millennials say they are considering applying for a HELOC (home equity line of credit) in the next 18 months – much more than Gen-X or Baby Boomers
  • HELOC’s are popular with Millennials because they can consolidate debt and afford home remodels with them

I think this is an interesting trend in our market. Home prices are high, but so are the debts and loans owed by Millennials, so we’re seeing more and more interest in new ways around that issue. And even more interestingly, Millennials are changing the way we market homes – who cares about parking when you don’t have a car, right?