Homeowners Bullish on Home Equity Growth, But Still Shy on Tapping

Many Americans are confident their home equity will grow in 2016, yet most expect to remain conservative about accessing this valuable asset, a recent survey suggests.

Although 60% of U.S. homeowners with a mortgage reported their home equity has increased over the past three years of the housing recovery, nearly half (46%) of all homeowners expect continued gains to occur this year, according to a recent survey conducted for loanDepot, LLC.

Of those who predict their equity to rise this year, 85% expect it to increase as much as 10%, with 27% expecting their equity to rise between 6-10%, according to the survey, which is based on the interviews of 1,000 mortgage-holding Americans conducted from January 15-17, 2016. Only 3% of homeowners expect their equity to decrease in 2016, and 27% expect it to remain the same.

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These growth expectations surpass industry-wide forecasts, which predict annual price gains in 2016 to range between 2.3-4.7%, according to the most recent Zillow Home Price Expectations Survey for the fourth quarter of 2015.

loanDepot also found that while 57% of homeowners believe their home’s value has appreciated in the past three years, the majority (80%) underestimate the amount of value their home has actually gained.

For example, of those who believe their home’s value has increased since 2013, one in four (27%) believe it increased between 1-5% since 2013, when in fact, home prices have risen twice that much—10% from November 2013 to November 2015, according to the Case-Shiller 20-city index.

Homeowners who bought during the housing boom have been regaining equity many thought was lost forever, yet too many are unaware of the equity they have gained or are unclear about how to determine changes in their equity, said Bryan Sullivan, chief financial officer of loanDepot, LLC.

A key factor in the discrepancy between home equity expectations versus reality depends upon timing, specifically, whether homeowners purchased homes during or after the housing boom and bust, according to loanDepot’s findings.

“The 2001-2006 housing boom and subsequent 2007-2009 bust were watershed events that changed the way millions of homeowners think about equity,” loanDepot stated in a release.

As such, buyers who purchased before or during the boom, and thus watched their equity “wash away” from 2007-2009, have different views on equity compared to buyers who bought when prices were lower, post 2009.

loanDepot found that most buyers who purchased after 2009 (64%) believe their home has gained value since 2013, compared to 58% of pre-2009 owners. Of these post-2009 buyers, 50% expect to gain more equity this year, compared to 43% of pre-2009 buyers.

“Newer buyers may be more bullish on equity gains because they did not experience drastic losses of equity like their pre-2009 counterparts,” noted loanDepot.

More pre-2009 owners (65%), however, believe they have sufficient equity now to begin accessing their home equity, particularly via a home equity line of credit, whereas just over half (52%) of newer, post-2009 buyers feel this way.

Comparing the willingness to tap home equity between these two buyer groups, loanDepot finds post-2009 owners are more conservative on using their equity. Although a majority of owners from both groups say they have always been conservative about accessing their home equity, post-2009 buyers are more hesitant to tap their equity by a margin go 62% to 55%.

But how much home equity is enough to warrant its utilization via products like home equity lines of credit? This largely depends upon the personal preferences of homeowners and what expenses they plan to pay for using their home equity.

Home remodeling (39%), consolidating high interest rate debt or credit cards (29%) and saving for retirement (18%) were among the top objectives for which owners said they would use funds from a home equity loan.

But when it comes to their equity, loanDepot stresses that all homeowners tend to be conservative, knowing equity can help them weather economic downturns.

While more than half (58%) of homeowners said they have always been conservative about their home equity, 14% said the housing crisis has made them even more cautious about touching their equity.

Simultaneously, 19% of survey respondents said they have no concerns about accessing their home equity as long as they stay current on their mortgage.

Meanwhile, 5.7% do not believe keeping a high level of equity in their homes would protect them from another housing crash, while just 3% say they have waited a long time to get cash back from their homes.

“People who bought after the housing boom when prices were low are realizing homeownership can be a great investment and an asset that they can now leverage through equity to realize many dreams,” Sullivan said in a prepared statement. “Whether they choose to leverage their home equity now or reserve it for future needs, millions of homeowners have choices today not available just a few years ago.”

Written by Jason Oliva

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  • This was an interesting article that Jason wrote. The title says a lot. However, it is not hard to understand why our senior citizen home owners are shy on tapping into their equity.

    We all have to remember (I sure do) the era our clients came from. The American dream has always been homeownership but for many of them, paying off their mortgages were also part of that dream!

    Unfortunately, we as a nation has changed drastically from the late 40’s, 50’s and 60’s. Staying on one’s job for 30 or 35 years was the norm. Retiring on a nice pension from your place of work in addition to social security and other possible VA income benefits were what those from that era expected when they were ready for retirement!

    Wow, what a shock it is today for most of these people, just think of all the baby boomers turning 62 and 65 years of age, not counting the ones that are older than that! This is why Jason’s article makes so much sense. It may also be one of the reasons the reverse mortgage represents such a small percentage of loans closed in our country.

    Our product today can mean more to a senior homeowner as a retirement source than it ever did before. Many of those dreams that were in the minds of the people I mentioned above, have not come true, sadly enough!

    Today the HECM product has more credibility than ever, FA has put a new face on our product, especially in the eyes of the financial planners, attorneys, accountants, banks and more.

    It is up to us and our organizations like NRMLA to get out their and educate everyone we can on how valuable our product is as a retirement supplemental tool! In many cases, the HECM can be one of the primary retirement income or relief to improve their whole quality of life.

    2016 and 2017 are going to be the years for us to lay foundations to establish the greatest years we will be facing in our industry, as long as we capitalize on it.

    It is funny, a friend of mine, Mike Gruley, who many of you know were talking and we both agreed on this same topic, just yesterday believe it or not, before this article came out!!

    This article sure makes you think about why and how the HECM product came about, doesn’t it?

    John A. Smaldone
    http://www.hanover-financial.com

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