Extraordinary equity created in just two years goes hand-in-hand with the housing affordability crisis.

American Homeowners Gained More Than $6T in Housing Wealth in Past 2 Years

Over $6T in housing wealth has been created over the past two years due to historically scant inventory and ravenous demand driving up home prices at a record pace during the pandemic.

The 65% of American households who own their home are the beneficiaries of this +$6T windfall.  The 35% of American households who do not own their own home are seeing their rents rising to record heights, their incomes being chipped away by inflation and their dreams of building wealth via homeownership evaporating.

Dual Realities of Equity Wealth & Lack of Affordability Have Few Precedents

“There’s a rosy picture and a not-so-rosy picture,” said Emily Wiemers, an economist with Syracuse University who studies how homeowners with families tap their home equity to pay for higher education for their kids.  Those homeowners with equity often tap that equity to send their children to college, start businesses, and/or invest in more housing to build even more wealth.  “The flip side (of that) is pretty troubling,” said Wiemers.  “There’s this set of kids whose parents don’t own a home and so didn’t see this increase in wealth, and also whose parents may have seen declines in income.”

The bottom line?  Some families with home equity for the first time will be able to create intergenerational wealth; some families without home equity will be forced to delay homeownership for years.

Accessing Home Equity Becoming More Expensive

Industry economists such as Mark Zandi with Moody’s see home equity as being “largely durable” (meaning home prices will not decline) since the imbalance of too little housing (supply) and too much demand for housing (demand) is expected to last for a long time.

However, accessing that tappable home equity via home equity loans is becoming more and more expensive as interest rates rise.  That said, Black Knight estimates that the average homeowner with a mortgage has gained approximately $67,000 in “tappable equity” over the last two pandemic years…actual cash households could access while still keeping 20% of their equity in their homes as most lenders require.

Using this 20% measure, tappable equity in San Jose CA would enable an average mortgage holder to pick up $230,000 during the two pandemic years.  In Boise ID, that mortgage holder would be able to pick up $114,000 and in Cleveland, that tappable equity would be $27,000.

Changes in Tappable Equity in US Metros

                                    Average Tappable Equity

         Metro                 Q4 2019             Q4 2021      Change

  • San Jose CA              $545K                 $775K     +$230K
  • Los Angeles CA          $326K                 $514K     +$188K
  • San Diego CA            $250K                 $432K     +$182K
  • San Francisco CA       $442K                 $622K     +$180K
  • Seattle WA                $215K                 $373K     +$158K
  • Urban Honolulu          $245K                 $390K     +$145K
  • Oxnard-Ventura CA    $245K                 $359K     +$130K
  • Austin TX                  $116K                 $245K     +$129K
  • Boise ID                    $119K                 $233K     +$114K
  • Sarasota FL                $93K                  $201K     +$108K

Michael Lovenheim, an economist with Cornell University, said, “For large swaths of US households, this is great.  And it’s not just for the super-rich, and it’s not just for those who live in the big superstar cities.”

For example, in Albuquerque NM, tappable home equity has grown from $62,000 in 2019 to $102,000 in 2021, an increase of +$40,000.

The problem, however, is that similar stories are increasingly out of reach for other families who do not own their own homes.  A family making $70,000/year in Northern Virginia cannot compete for a three-bedroom home in their area.

Cy Richardson, senior vice president for programs at the National Urban League that promotes homeownership among Black families, said there are few if any alternatives to homeownership in terms of building wealth.  Richardson said, “…it’s an economic disaster for Black families who are unable to achieve homeownership.”

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Thanks to Moody’s, National Urban League, Cornell University, Syracuse University, Black Knight and The New York Times.


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