Homeowners sitting on record equity, still afraid to take out loans

Americans are sitting on a ton of equity, but they are still hesitant to take out home equity loans.

Continue Reading Below

According to data and analytics solutions company Black Knight Inc., homeowners have more than $5.8 trillion in equity – which is not only a record amount but also more than double levels seen in 2011 and 2012. Tappable equity grew 7% in the first quarter alone, driven in part by rising home prices.

The average homeowner with a mortgage has about $114,000 in equity, but in some areas – like California – those numbers are much higher, Black Knight reported.

Still, homeowners are reluctant to borrow against their equity. In the first quarter, homeowners withdrew just $63 billion through home equity lines of credit (Helocs) – a 7% decline over the same period last year, Blacknight found. Of the $5.4 trillion of tappable equity available at the beginning of the quarter, only 1.17% was withdrawn – the second lowest amount since the housing recovery began.

Black Knight attributed homeowners’ reluctance to borrow in part to rising interest rates, which increase the cost of borrowing.

Some may also still be haunted by memories of the housing collapse, where many saw the value of their homes plummet and debt levels rise.

While the Tax Cuts and Jobs Act, which was signed into law in December, eliminated interest deductions for most types of Helocs, Black Knight said it didn’t see that as a “primary driver of subpar Heloc withdrawal numbers.”

Bankers, however, want consumers to take the bet. They have increased spending on direct-mail for home equity products by 30%, according to research firm Mintel, as reported by Bloomberg.