Homeowners are sitting on a record amount of equity, but this time they’re stubbornly reluctant to borrow against it.
Strong home price appreciation has handed Americans more than $5.8 trillion of equity they could be tapping and aren’t, more than double the level in 2011, according to data provider Black Knight Inc. At least part of that reluctance stems from rising rates, which means debt carrying adjustable rates will keep growing more expensive.
Last decade’s mortgage crisis has likely made consumers hesitant, too. Home prices fell 35 percent after the bubble burst, leaving many borrowers owing more than their house was worth. People who tapped their equity to pay off their credit cards ended up struggling to meet their obligations, said Dan Alpert, managing partner at Westwood Capital, a New York-based investment bank focusing on real estate.
“There’s a long-memory issue," Alpert said. “People got caught with home equity lines last time."
The banking industry is now encouraging homeowners to take a little more risk. Lenders jacked up their spending on direct-mail for home equity products by 30 percent in the first quarter compared to a year earlier, according to market research firm Mintel.
The offers are landing in the mailboxes of potential customers like Andy Dogan, 42, who considered taking out a home equity line to increase his stake in the architecture firm where he’s a partner and make home improvements. He ultimately passed when the bank offered him a line for about $20,000 less than the mailer said he could be eligible for.
‘It’s Time’
"We were underwhelmed as to what we were able to do, especially given that their solicitation threw a number out there," Dogan said. He said he’d probably wait a few years for the equity in his Elgin, Illinois, home to increase further before considering a line of credit again.
Some banks have had success growing their client base. Citizens Financial Group Inc. has boosted its volume by a double digit percentage this year thanks in part to a data and analytics program that helps it find customers based on factors like credit scores, home values and incomes, said Brendan Coughlin, president of consumer deposits and lending.
"It’s time to see home equity lending come back," Coughlin said. "Each year we’re investing more."