Strong Equity Cushion Formed for U.S. Homeowners by 2019

March 11th, 2019

The fourth quarter of 2018 Federal Reserve’s Flow of Funds report shows the market value of all owner-occupied residential real estate. A previous post referred to banks bracing for a tight lending environment in 2019, per the Senior Loan Officer Opinion Survey, with banks expecting to tighten standards for all borrowers, including homeowners. However, homeowners can draw from their equity built in their home, which is the difference between the market value of their house and the mortgage debt they owe on it.

The home equity percentage reached a level that had not been seen since the second quarter of 2002. As of the fourth quarter of 2018, the equity percentage, on a non-seasonally-adjusted basis, stood at 60.1%. At the end of 2018, the market value of all owner-occupied real estate totaled $25.9 trillion, growing by 5.3% from the start of the year, and outstanding home mortgage debt totaled $10.3 trillion, growing by a lesser percentage of 2.6%. The trend in the market value of all owner-occupied real estate mirrors that of the Case-Shiller U.S. National Home Price Index. Rising residential real estate prices are a good proxy for the increasing market value of homes in the U.S.

As mentioned previously, homeowners can draw from the equity built in their home, either through home equity loans, a form of non-revolving debt, or home equity lines of credit (HELOCs), a form of revolving debt. The number of HELOCs collectively utilized by all homeowners and their aggregate balance is shown in the below figure.


As of the fourth quarter of 2018, homeowners collectively held 15.4 million home equity lines of credit, totaling a balance of about $0.4 trillion.

Source – Eye on Housing

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