US Homeowners Hit New All-Time High Of $35 Trillion In Home Equity

To investors,

Housing is one of the most important areas of the US economy. Since affordability has deteriorated, the editorial team at ResiClub has continued to cover the sector vigorously. Lance Lambert has a guest post for us today on record home equity levels.

If you want more housing coverage, I highly recommend you subscribe by clicking here. Here is Lance’s write-up:

According to quarterly data just released by the Federal Reserve Board of Governors, in Q2 2024, homeowners had a record:

$48.2 trillion —> Aggregate value of their owner-occupied residential real estate

$13.1 trillion —> Aggregate total of their mortgage debt

The difference between that aggregate housing value and aggregate mortgage debt represents homeowners’ total home equity. In Q2 2024, that total home equity hit a record $35.1 trillion.

Total U.S. homeowner equity, by Q2 👇

Q2 2017 —> $16.1 trillion

Q2 2018 —> $17.7 trillion

Q2 2019 —> $19.0 trillion

Q2 2020 —> $20.7 trillion

Q2 2021 —> $25.1 trillion

Q2 2022 —> $32.5 trillion

Q2 2023 —> $32.0 trillion

Q2 2024 —> $35.1 trillion

The remarkable 85% increase in aggregate U.S. homeowner equity since Q2 2019 can largely be attributed to the Pandemic Housing Boom.

During the Pandemic Housing Boom, housing demand surged rapidly amid ultralow interest rates, stimulus, and the remote work boom. Federal Reserve researchers estimate “new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand.” Unlike housing demand, housing supply isn’t as elastic and can't quickly ramp up. As a result, the heightened demand drained the market of active inventory and home prices overheated, with U.S. home prices as tracked by the Case-Shiller National Home Price Index in June 2024 were a staggering 59.5% above June 2019 levels.

There’s also the fact that mortgages with 2% and 3% rates (which many homeowners refinanced to during the pandemic) are amortized in a way that has them pay down equity relative to interest faster than higher interest rate loans. This has constrained the recent growth in total mortgage debt.

The record $35.1 trillion in home equity has an economic impact.

This vast amount of equity—coupled with the fact that 96% of U.S. mortgage debt is fixed-rate—has likely helped buffer homeowner consumer spending during the Fed’s interest rate hiking cycle.

In fact, the “housing wealth effect” is one of the strongest “wealth effects.” In 2005, Yale economics professor Robert Shiller co-authored a paper finding that changes in home prices “have a larger and more important impact than changes in stock market prices in influencing household consumption in the U.S. and in other developed countries.”

Of course, the housing wealth effect can cut both ways, with a Shiller paper in 2011 finding that “the effects of declines in housing wealth in reducing consumption are at least as large as the effects of increases in housing wealth in increasing the course of household consumption.” On a local economic basis, this could be having some negative effect on Gulf markets like Austin, New Orleans, and Punta Gorda, where home prices have fallen recently.

Many in the mortgage industry believe that record home equity, coupled with homeowners' resistance to sell—given that 76% have a mortgage rate below 5.0%—will spur growth in home equity loans and second mortgages moving forward.

“As we look ahead, the next refi wave will not be a rate & term refi story as it was during the low-rate era of the pandemic, it will be the resurgence of home equity [loans/products],” Jeff DerGurahian, chief investment officer and head economist at loanDepot, told ResiClub in July. “Freddie Mac’s initial pilot move to purchase second mortgages is limited to $2.5 billion and focused on smaller loan balances. If it is expanded and Fannie Mae offers a similar program, it will open up the home equity market and lower the cost of borrowing by infusing more liquidity into the secondary market for home equity loans. This will spur more lenders to offer equity lending products.”

I hope you enjoyed this guest letter from Lance Lambert, the Editor-in-Chief at ResiClub. ResiClub is the leading outlet for residential real estate in the United States. You can subscribe for free to receive their work every day by clicking here.

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Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

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