Winners And Losers In The Real Estate Market—American Homeowners Are Sitting On $11.2 Trillion In Equity

The results of mortgage exchange operator Intercontinental Exchange's November 2024  ICE Mortgage Monitor, shows American homeowners are sitting on $11.2 trillion in accessible equity. The total equity is $17.2 trillion, but the available amount is smaller because most home equity lenders don't like lending out more than 80% of the homeowner's equity. Nevertheless, ICE Mortgage Monitor's study illustrates the unprecedented borrowing power possessed by American homeowners.

The study showed that the average homeowner has $319,000 worth of equity in their home, with $207,000 of it being accessible. ICE noted that despite the available equity, borrowers have been using it at only half the 10-year average of 0.92%. Second mortgages are down by 26% and cash-out refinances declined by 69% in relation to normal borrowing activity. It's likely that reticence to access equity by homeowners has something to do with interest rates

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"Despite a two-year high for equity withdrawals in the third quarter, homeowners are still tapping their housing wealth at less than half the rate they have historically." ICE Vice President of Research and Analysis Andy Walden said

He continued, "Second lien withdrawal rates are currently running more than a quarter below ‘normal' and cash-out refi withdrawals are still down almost 70%. Over the past 10 quarters homeowners have extracted $476B in equity, exactly half the extraction we'd expect to see under more normal circumstances. That equates to nearly a half a trillion untapped dollars that hasn't flowed back through the broader economy."

 The ICE study results also speak to the strength of the "lock-in effect," where today's homeowners are reluctant to sell because of the likelihood that they will re-enter a home market with reduced buying power due to higher home prices and mortgage rates. Now it appears that the "lock-in" effect is taking a chunk out of home equity borrowing as well. The good news for homeowners is that they have equity to access at all. 

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That's what it looks like on the winning side of this equation. On the other side, sit prospective buyers, who are taking hits from all sides. The lock-in effect means less inventory, while high construction costs keep developers in the most inventory-starved markets on the sidelines. The high interest rates are a double whammy for buyers because developers depend on financing to get projects off the ground and buyers need financing to complete purchases.   

Buyers are also growing more pessimistic about the prospect of interest rates ever returning to the low-single digits like they were between the great financial crisis of 2008 and the COVID-19 pandemic. A New York Federal Reserve study on consumer expectations released last May showed respondents believe interest rates will be near 10% in the next three years.

Although that study came out before the Federal Reserve lowered interest rates in late 2024, buyer pessimism remains high. The Fed's recent decision to pause the rate cuts due to fears over rising inflation put even more buyers back into a holding pattern. All told, it means the housing affordability crisis isn't going to get better anytime soon. If you're already an owner, you're likely sitting on a pile of equity. 

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