Why aren’t homeowners tapping into all-time high equity?

Last week, Black Knight reported that American homeowners’ tappable equity is at an all-time high, at a whopping $5.4 trillion and 10% above the previous peak in 2005 (with 65% of all tappable equity is held by homeowners with credit scores of 760 or higher). Curiously, this time around, these homeowners are decidedly more conservative, withdrawing only 1.25% of equity available to them in Q4 2017, which is a four-year low. This is happening when HELOC and cash-out refinance rates are still very low, and certainly lower than what these same homeowners would have to pay for credit card interest rates.

The MBA also forecasts refinance volume will decline by 30% in 2018. In other words, while homeowners have a lot more equity at their disposal, fewer will be accessing that available cash. Why?

For starters: rising interest rates. Given the banner years refis have had in recent years, many homeowners who wanted to and were eligible for a refi have already done so. This is not news; but after acknowledging the economics, a further look into homeowners’ psychology gets more interesting and helps us understand what else could be holding them back.

Amid CoreLogic’s monthly reminders that nearly half of the nation’s top housing markets are overvalued, Fannie Mae’s latest HPSI continues to report housing sentiment “volatility”. According to Fannie Mae’s survey, the net share of respondents who believe home prices will go up in the next 12 months decreased 3 percentage points in March. The latest ValueInsured Modern Homebuyer Survey echoes the same cautiousness in home price sustainability, particularly among homeowners:

Tappable equity is at all-time high, so why aren't homeowners refinancing?

• 70% are concerned about eventually losing money if they were to buy a new home today

• 61% of all homeowners report noticing more buyers now overleveraging themselves to buy homes they cannot afford

• 59% believe homes in their area are currently overvalued

• 56% believe a housing bubble will happen within the next 2 years

Among the aforementioned more mature homeowners, housing market concerns appear more magnified:

• Among Baby Boomer homeowners, nearly 1 in 3 (31%) consider the current housing market “unhealthy”

• 32% believe if they were to buy a home today, that home would decrease in value by the end of 2019

• Only 67% believes the housing market is headed to a good direction “for people like me”

Interestingly, even when many proclaim what we have now as an unprecedented sellers’ market, 1 in 3 or 33% of all Baby Boomer homeowners do not believe the housing market is headed to a good direction for them. Many of these are been-there, done-that homeowners who have witnessed peaks and valleys first-hand and are therefore more cautious of an impending correction. Such cautiousness also helps explain why record amount of tappable home equity stays untapped.

In a time when the housing and mortgage industries wonder why homeowners are reluctant to sell or to tap into their home equity, remember these figures: 53% of all homeowners and 66% of Baby Boomer homeowners believe they could witness another 2008-style housing crisis in their lifetime. If these homeowners could be given more confidence in housing health and price sustainability, we would likely see more positive movements in our next refinance or home inventory report too.