Homeowners Have $17.6 Trillion In Equity, When Will The ReFi Boom Begin?

For many homeowners, their home is their biggest asset and has increased in value dramatically over the past several years. CoreLogic's second-quarter analysis puts the total equity for homeowners with mortgages at $17.6 trillion, up 8% or $1.3 trillion year over year. Around 62% of all homes carry a mortgage. 

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This equity may continue to grow over the next year. Around 1.7% of all mortgaged properties have negative equity, meaning the owners owe more than the home’s value. CoreLogic estimates that if prices rise by 5%, 105,000 homes will move into positive equity territory. If home prices fall by 5%, about 139,000 homes could go underwater, owing more than their home is worth. CoreLogic forecasts home prices will rise by approximately 2.3% from June 2024 to June 2025. 

Most of this equity has remained untapped. With interest rates over 6%, there has been little incentive to refinance and secure a better rate. However, with mortgage rates now at their lowest level in over a year, a refinance boom – or at least a boomlet – might be on the horizon. 

The lack of refinancing activity has hurt the mortgage industry, with many large mortgage lenders laying off loan officers. Lower interest rates have caused refinancing applications to rise above last year's levels, though they remain well below historic highs. Unfortunately for mortgage companies, a full refinancing boom may still be far off. 

The issue is that most homeowners secured mortgages at rates below 5%. According to ResiClub, 76% of mortgage holders have rates at 5% or lower. This is also why many homeowners are opting to stay put rather than sell their homes. 

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Mortgage rates may take at least another year to fall below 5%. Refinancing also has closing costs, so homeowners must consider those expenses. Around 3.4 million homeowners have mortgages above 6.5%, a rate that would make refinancing more attractive. Still, this number pales in comparison to the 14 million homeowners who refinanced in 2021 and 2022.

As the personal savings rate declines and consumers feel financial pressure, many may wonder how to access their increased equity. Home equity loans function like a second mortgage, with a lump sum withdrawn and a fixed interest rate for repayment. If rates drop enough, this option will become more appealing to many homeowners. A home equity line of credit (HELOC) allows for withdrawals over time and often has a variable interest rate. HELOCs tend to be more interest-rate sensitive than home equity loans. 

Many economists believe a housing crash is unlikely because most homeowners have significant equity. Prices would need to drop substantially to push homeowners underwater. A lack of inventory in many markets has kept prices high. If the economy weakens and unemployment rises, many homeowners may be glad they have a cushion of untapped equity to rely on. 

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