UNTAPPED EQUITY: Why Americans are hesitant to dip into their vast resources

We are living in a unique moment when many of us have vast sums of money at our disposal that we are deliberately choosing not to access.

According to Black Knight’s recent report, America’s 44 million homeowners have more tappable equity — $6 trillion to be exact — than at any other time in the nation’s history. The amount of accessible equity grew by $256 billion in Q2 of 2018 alone, increasing this year’s equity to a whopping $636 billion.

To put this in perspective, the amount of equity currently available is three times what it was when the market bottomed out in 2012, and 21 percent more than before 2006’s real estate bubble burst.

But apparently no one’s touching it.

Well to be more precise, fewer Americans are touching their equity than has historically been the case.

Black Knight’s report states that equity withdrawals via HELOCs and cash-out refinances dropped by 3 percent from 2017 (withdrawals via new HELOCs dropped 4 percent).

Why the reluctance to tap our resources?

One factor that tends to negatively impact homeowners’ equity utilization is higher interest rates. The share of tapped equity is currently at its lowest rate since the first quarter of 2014, when interest rates were also on the rise.

According to Black Knight, “This time last year, 1.36% of available equity was being tapped, suggesting rising rates may be suppressing equity utilization by approximately 17%.”

“Following that logic,” the report continues, “homeowners tapped about $13 billion less equity this year than they might have otherwise, including $8 billion in would-be HELOC originations and $5 billion fewer cash-out refinances in Q2 2018 alone.”

Another factor is the down-tick in equity growth.

Despite being at a record high the study shows a slowing of equity growth rates, with Q2’s increase of $256 billion following on the heels of a growth rate of $308 billion in quarter one.

This is due to the fact that increases in housing prices are slowing down in the nation’s most equity-rich markets such as California and Seattle (the former dropped 43 percent in the second quarter of this year, while the latter decreased by 60 percent).

In sum, yes, we are indeed experiencing a new housing bubble. But no, it is not so scary this time around.