Home Equity & GDP

I’m a fan of reading the Wall Street Journal (WSJ) daily and its sister weekly publication, Barron’s, which dives into the details of all things finance-related. I often brainstorm ideas while reading these publications and enjoy sharing with our readers how I’m seeing the real estate or mortgage market change.

Home equity, and how is it useful to consumers? This was a recent topic of an article our readers might find interesting: “American Homes are Piggy Banks that Few People Can Afford to Raid.” This article was not entirely positive; however, I tend to see the bright side of any economic opportunity. How can home equity not be positive?

There is an estimated 35 trillion in equity or value above what might be owed for the United States housing inventory. This is more than the value of the entire US Gross Domestic Product in one year at approximately 27 trillion in 2023. Even if we took a 20% hit, lowering home equity values nationwide, home equity would still be worth 28 trillion. It’s worth noting the entire market cap of all stocks on the New York Stock Exchange is smaller than this at approximately 28 trillion. You would have to add the value of the Nasdaq, and another 25 trillion to exceed the equity in the US housing market.

Can you guess who the active players are in this real estate market who are taking advantage of their home equity, making them not only sellers but also buyers? You might call it back to the future, or back to the baby boomers (age 60 to 78). Not only is it challenging for young people to afford newly appreciated home prices and higher mortgage payments, but also, these homes that are sold for higher prices impact the equity or dollar amount received by sellers who are often 60 to 78 years old. Another change is household formation and the expectation of raising children. Three-quarters of people who bought homes between July 2023 and June 2024 had no children on record.

The biggest sellers in today’s market are those with an average age of 63, taking advantage of their huge equity gains. They’re using these gains for retirement or to relocate to their dream location. I know the Outer Banks is on the list for retirees, along with Florida and other popular southern and western states such as Arizona and Colorado. Another part of the age group that is buying homes is closer to the millennials aged 28 to 43, who have kids. These might even be larger homes with the whole family coming back to live together, under one roof to assist with raising grandchildren.

Borrowing money using home equity to a borrower’s benefit could not get out of my head, even though the article makes no real mention of this possibility. We often point out the benefits of using your home equity to make a second home purchase or, recently, to purchase a lot in a resort location such as the Outer Banks for future building plans. Fixed rates for second mortgages have no closing costs, making them extremely attractive for consumers. A 15-year fixed rate for a second mortgage with no closings is available if you search wisely with rates under 6.190%. It’s a fantastic way to finance the purchase of another property with little to no money down and pay less interest overall.

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