A version of this article was first published in the newsletter Property Play written by Diana Olick (Diana Olick). Property Play focuses on the new opportunities and evolving prospects faced by real estate investors, covering a range of stakeholders including individual investors, venture capital firms, private equity funds, family offices, institutional investors, and large listed companies.
Driven by the rapid rise in housing prices over the past few years, homeowners in the United States have accumulated housing wealth at a historic high. However, they haven't spent much of it.
Data technology company Cotality stated that in the second quarter of this year, the so-called extractable net value of housing (tappable home equity) totaled 11.5 trillion dollars. This refers to the amount that borrowers can withdraw by borrowing, provided that they still retain sufficient net value in their homes to meet the requirements of lending institutions.
The total net value of homeowners' mortgages is 17.9 trillion dollars, averaging about 310,000 dollars per homeowner, an increase of 6,000 dollars from the previous three months.
Although new second mortgages or home equity line of credit loans ( HELOC ) processed by homeowners have increased by nearly 20% compared to the first quarter, this still accounts for less than 0.1% of the total amount of their available home equity.
Cotality Chief Economist Thom Malone stated: "Borrowers who possess the most housing wealth are often the least likely to utilize that wealth. They usually enjoy lower mortgage rates, have stronger cash flows, and hardly have any reason to move."
Therefore, most of this funds remains idle and continues to accumulate as housing prices continue to rise slightly in most areas of the United States. Consumers are also becoming increasingly uneasy about the economic situation and rising interest rates. If one were to apply for a second loan, the interest rates would be significantly higher than their current mortgage rate for the first home; unless absolutely necessary, most people would not do so.
In the first two years of the COVID-19 pandemic, mortgage rates dropped to historic lows. This meant that anyone who purchased a home during that period or earlier enjoyed loan rates that were at least one-third of the current rates. Lower monthly payments typically resulted in stronger cash flows, allowing them to fund home renovations or even expenses such as university tuition without having to tap into their home's equity.
The real estate market exhibits significant regional differences, with housing net worth being most concentrated in the western and northeastern parts of the United States. Homeowners in Hawaii and California have an average net worth of over $600,000, while in Massachusetts it exceeds $400,000. In contrast, the housing net worth in Louisiana, Oklahoma, and Iowa is only slightly above $100,000.
This difference is not only very apparent but also widening, as the housing price increases in the high-net-worth market have been even more significant to begin with.
Although the net worth of homeowners in most states is increasing, there are also some regions where housing prices have fallen, resulting in a decrease in homeowners' net worth, including Texas, Minnesota, Colorado, Maryland, and the District of Columbia.
However, the proportion of borrowers who owe more on their mortgages than the value of their homes, namely those with "overleveraged mortgages" ( underwater mortgages ), is still very low, at only 2.1%.
