These two catalysts could spark a surge in home equity use

This year, two geysers of pent-up wealth are set to erupt, and the ripple effect just might inspire more homeowners to utilize their home equity.

That’s the theory proposed by Bloomberg columnist Conor Sen in a recent op-ed, in which he examines the possibility that U.S. homeowners might once again embrace debt and leverage now that memories of the financial crisis are beginning to fade.

According to Sen’s theory, two catalysts just might spark a trend toward equity access, most likely in the way of cash-out refinancing.

First is the wave of tech IPOs as giants like Uber, Pinterest and Lyft go public. The results will shower employees with tens of billions of dollars in buying power, some of which Sen predicts will be channeled toward the housing market as tech workers use that IPO cash as down payments to buy a new house.

The second factor is a drop in interest rates, which creates a ripe spring home buying season.

“Those two catalysts could drive up home values,” Sen writes. “That would have much larger ripples if homeowners revert to an ‘old normal,’ being opportunistic about home equity and interest rates to treat their homes as vehicles for financial engineering.”

Sen points out that home equity levels have risen nationwide, leaving plenty of money on the table for homeowners who want to restructure their debt or make a large purchase.

“The further we get from the financial crisis and as memories of that era fade, the more homeowners will be receptive to these types of scenarios,” Sen states.

“Even as a large part of the economic story this decade has been a rise in private tech company valuations and a recovery in home prices, we generally haven’t seen either store of wealth tapped by households,” he continues. “In 2019, we finally may.”

Published at Thu, 11 Apr 2019 16:01:00 +0000