Homeowners Cautious with Lines of Credit Despite Equity Gains


The current release of the Federal Reserve’s Z.1 Financial Accounts report of the U.S., also known as the flow of funds report, shows a continuing increase in the market value of households in the U.S. Mortgage debt continues to expand as well, albeit at a much slower pace. The aggregate market value of houses represents assets on households’ balance sheets, while home mortgages are liabilities. While homeowners’ equity increased from the previous quarter, the flow of funds data also show that the increased availability of credit, as of the first quarter of 2019, has not incentivized current homeowners to borrow more. This is reflective of the broader dynamics in the macroeconomy between savings and consumption.

Households’ aggregate market value stand at $26.1 trillion while home mortgages total $10.4 trillion as of the first quarter of 2019. As the market values of houses grow at a faster rate than home mortgages from the previous quarter, home equity, the difference between houses’ market values and home mortgages, has widened. Despite the widening of home equity, home owners have not jumped to finance their expenditures through channels of revolving credit that are viable through it.

As can be seen from the above figure, the amount of available home equity (HE) revolving credit has expanded through and following the Great Recession while the HE revolving balance, that is, the amount to be paid off by those who utilized home equity lines of credit (HELOCs), has decreased during the same period. As of the first quarter of 2019, the amount of available revolving credit in home equity increased by $10 billion to a current level of $0.53 trillion ($530 billion) and the HE revolving balance decreased by $6 billion. The number of HE revolving accounts, according to the household debt and credit report, decreased by 100,000 to 15.3 million.

The caution in accumulating debt exercised by homeowners has also been echoed by prospective new homebuyers as well as banks: according to recent data from the Mortgage Bankers Association’s Weekly Application survey, amid the dramatic decrease in mortgage interest rates, prospective new homebuyers have not been quick to take up the opportunity afforded to them. Banks, too, have tightened their standards on lending, but less than Senior Loan Officers had anticipated at the end of 2018.

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