Are Our Homes Becoming ATMS Again?

We all have been holding our breath to hear what Jerome Powell would say in Jackson Hole, WY last week about the economy and the possible easing of interest rates.  CBS News says while there is a possibility of a 50 basis point cut, expectations are that the federal funds rate will be reduced to a range of 5.00% to 5.25% in September — a decrease of 25 basis points. This approach aligns with the Fed’s typically gradual policy adjustments.

With the initial rate cut expected to be minimal, the impact on mortgage rates is likely to be modest. If the Fed implements a 25-basis point cut, for example, we might see the average 30-year mortgage rate decrease from its current level of 6.57% to around 6.32%. For 15-year mortgages, a comparable 25 basis point reduction could potentially bring rates down from the current 5.95% to approximately 5.70%.

While these potential mortgage rate decreases may seem small, they could still translate into meaningful savings for borrowers over time. More importantly, the initial cut could set the stage for further reductions in the future, potentially leading to a more significant downward trend in mortgage rates over time.

However, we know that there is $33 TRILLION of home equity in the United States and because 60% of the interest rates today are under 4%, it is highly unlikely homeowners who don’t need to move are going to refinance.  Home inventory is still low so purchase volume isn’t happening. 

There is now $500 BILLION of home equity debt and increasing.   Are we going back to the late 2000’s where homeowners were using their home equity as ATMs?   Does it make sense for all the reasons homeowners need cash?  Remodeling, college, wedding, life events, etc. 

HELOC’s have more than doubled in historical value.   Homeowners do not want to lose that 4% or less rate.  Many companies have sprung up whose value proposition is all about helping homeowners about utilizing their home equity for their personal needs. 

Fortunately, the annual appreciation of homes in the United States is 4.8% per Case-Shiller.   So, for most homeowners, utilizing their home equity for these life events is positive and does not affect them negatively when they do decide to sell their home for another home.

Today, our homeowners do have options, and our loan officers and bankers can counsel them on what is the best personalized loan for their needs.   We don’t have to automatically push them into a HELOC or home equity loan, however it may be the best option for them today.   The stigma of having a second mortgage on a home is over.   It is our job to address the homeowners’ needs and how to best fulfill their financial needs in whatever financial instrument makes sense for their financial situation.   Let’s just not automatically make the home equity an ATM.