Homeowners are sitting on record equity — and not using it

Well, Brian, in the second quarter this year, there was a collective 11 and 1/2 trillion dollars in so-called tappable home equity, according to Kotality. That is the amount borrowers could take out in debt while still leaving enough in the home to satisfy lenders. So, that comes out to $199,000 per borrower. While homeowners did originate nearly 20% more second mortgages or home equity lines of credit, we call them HELOCs, compared with the first quarter, it still represented less than 0.1% of the total tappable equity they could have used. They're just not pulling out the cash. Okay, why not? Well, take a look. The prime lending rate, which is what home equity lines follow, you can see it is now heading where? Straight up. It had been coming down, but also remember that borrowers with the most housing wealth are really those who have very low mortgage rates and therefore strong cash flow already. You can see here, the 30-year fixed, which by the way hit 7.58% today, according to Mortgage News Daily, it hit several record lows in the first years of the pandemic, prompting a massive refi boom. Even now, just over half of borrowers with mortgages have rates at or below 4%, according to ICE Mortgage Data. So, just from an emotional standpoint, borrowers might be looking at a second loan at more than twice their primary mortgage rate. Do they want that? No. The loss here, of course, is to the overall economy because all of that wealth is just sitting dormant in homes.