What do you make of the $35 trillion in home equity figure? How did it get so high, and what does it mean to homeowners? That total $35 trillion number is something, but we shouldn't be shocked by it. Low mortgage rates along with the effects of tight supply and strong demand (particularly in 2020) have set the stage for potentially rapid appreciation again. In markets such as Des Moines, where home prices were affordable for years, we had double digit appreciation through starter homes and mid tier homes. At the same time, majority of homeowners locked in rates at or below 4%, so they've been passively gaining equity from appreciation and principal paydown. Will a Fed rate drop set off a mortgage/maintenance boom? What's your take on the high home equity reserves? I also expect waves and waves of belated home maintenance, refinancing and remodeling business the first time that rates fall to whatever everyone has in their head as a psychologically "comfortable" place, probably somewhere from the mid 5%'s. In Des Moines, we have whole neighborhoods of older homes (think 1950s-1970s stock) for which the owners want to replace electrical, roofing, HVAC, and insulation—but not at 8% interest. What stocks do you like when rates go down and homeowners tap into their equity? Which sectors and why? And when this equity becomes unlocked, I would expect that to create tailwinds in three main areas: home improvement retail, building materials and energy efficiency tech. Home Depot (HD) A tried and true favorite. In the Midwest even homeowners turn to Home Depot for DIY and contractor needs. With spending accelerating for the repairs and mid size renovations this should benefit HD's contractor pro services and appliance divisions. We are already starting to see foot traffic in Des Moines increase following every pause by the Fed. Masco Corporation (MAS) Masco's businesses include Delta Faucets, Behr Paint and a number of cabinetry brands. These are go-to materials for the variety of moderate remodels homeowners are likely to undertake with new equity — new bathrooms, refreshed kitchens, painting projects. Masco gets a lift from both retail and trade, providing a broad exposure to outlays driven by homeowners.
From my experience buying over 1,200 homes, I can tell you that homeowners are definitely waiting for rates to drop before tapping into their equity, and I expect a surge in home improvement projects and property upgrades when that happens. Just last month, I met with several clients who have substantial equity but are holding off on cash-out refinancing until rates become more favorable, which perfectly illustrates the current market sentiment.
As someone who works closely with homeowners, I've witnessed firsthand how property values have skyrocketed, pushing that $35 trillion figure up through both home price appreciation and responsible mortgage payments. In my experience working with Jacksonville property managers, this equity buildup largely stems from the pandemic's housing boom combined with historically low interest rates that let homeowners build equity faster than ever.
Good Day, The completed picture over the past decade illustrates rising home prices due to the limited housing supply, post-pandemic migratory patterns, and historically cheap mortgage rates. This home equity is estimated to be over 35 trillion dollars. This significant equity is a reserve of wealth which can be claimed much later down the line when rates drop, making refinancing, home equity loans, or HELOCs more favorable. This surge in equity was driven by aggressive price appreciation between 2020 and 2022. This was due to cheap rates and high demand enabling buyers to bid up homes. With this surge of home equity, financial leverage could be employed to obtain funds through borrowing when interest rates drop. A decrease in rates will give homeowners incentive to utilize their equity such as through cash-out refinancing or HELOCs. That will likely result in a surge of home re-models which will increase the demand for home lenders and home improvement stocks. The Fed is certainly aware of the fact that equity is dry powder. While a rate cut can trigger spending unleashing the economy, far too much spending too quickly will trigger high inflation again. If rates go down and home owners access that $35 trillion, companies like Lowe's (LOW), Home Depot (HD) and Rocket Companies (RKT) will see growth each involved in home improvement or mortgage. These players are in position to do well in a wave of do it yourself renovation and refinance. I am into home improvement, mortgage finance, and consumer discretionary sectors. We see SHW and W as outperformers as equity flows into remodels, furnishings, and large ticket improvements. If you decide to use this quote, I'd love to stay connected! Feel free to reach me at marketing@docva.com and nathanbarz@docva.com
Real Estate Expert & Director of Acquisitions at JiT Home Buyers at JiT Home Buyers
Answered 7 months ago
Q1. Shockingly, the amount of $35 trillion is not shocking. The rise of home equity in the previous few years was the result of a combination of factors: very low interest rates during the pandemic, a shortage of housing, and aggressive price growth. At mortgage rates that were as low as they could ever be, home buyers would bid away home prices, and those who already owned a home would see a rise in which their home would increase their equity almost overnight. To homeowners, this translates to the fact that they have a financial nest (the piggy bank) all their own in the value of the house. It offers them choices, too: he or she can refinance, get a HELOC, or sell and downsize to cash out. However, now a lot are mortgaged at sub-4 percent rates, so they are not moving and accessing that equity at this moment. Q 2. Absolutely. The second thing that we can expect is an increase in equity tapping once the Fed indicates its intention to make a downward shift in rates. The owners of property who have been delaying their renovation, consolidation of debts, or purchase of a second house will put this into action. The HELOCs and cash-out refis will surge. I would also anticipate an increase in home improvement activity and the potential of seeing a growth in the turnover of the market, now that move-up buyers may come back into the market. Seven to a fast response, combined with high home equity and lower rates, creates an amazing combination. It would provide a gigantic source of liquidity to the economy and also to the middle and upper-middle classes, who have received this money passively. The Fed understands that too--it is a lever that could be used to make the consumers spend without getting out another round of money. Q 3. If rates go down, and homeowners tap their equity, I would be watching these three areas: Home Improvement & Retail: Home Depot (HD) and Lowe's (LOW) - Both are expected to win as people do remodeling, kitchen and bath upgrades, or build an addition. We have seen this before after the rate cut. Consumer Finance: Rocket Companies (RKT) - Growing refinancing and HELOC volumes mean a start in the money. Rocket can log measure market share due to its streamlined lending system and brand name awareness. Building Supplies & Services: Masco Corp. (MAS) - Masco includes its perch as a shot when its products approach Behr, chucking and Delta holes. More renovation work, more great need for good fixtures & finishes.
The U.S. home equity of $35 trillion is a result of perfect storm: historically low rates in 2020-21, pandemic-induced increases in demand and decades-long shortage of supply. People were refinancing to sub-3% mortgages, and as the value of the property increased by 30 percent or more in certain markets they were watching what refinancing brought them. Most of them are not handling it. Cash-out refis do not pencil at over 6.5 percent. HELOCs are increasing a little, but most of them are simply resting on paper wealth. In the case of home owners it is financial strength, but not liquidity. And to investors, that stuck equity means a smaller number of move-up sellers who are willing to sell their house, so inventory is low and more buyers are motivated to do creative financing or buy in at lower prices.
The reason that there is now $35 trillion in home equity is because of a decade of low inventory, inflation-induced price spikes, and a flood of owners who secured low rates before 2022. People have doubled the value of their homes, and a lot of homeowners are staying put since they are not willing to lose those 2-3 percent rates. It is a weird combination where the people are richer on paper but they are stuck in one position. What this has implied is that we have a massive amount of slumbering capital sitting in real estate and as soon as the cost of borrowing loosens, a great deal of it will scurry, swiftly. A meaningful rate cut by the Fed would inundate us with HELOCs, cash-out refis, and home renovation. People do not want to move house; people want to upgrade, extend or capitalize on what they already have. It is not an estimation. Borrowers have even told me to their faces that they are waiting until they are offered sub-6% before they can take the plunge. It is actual pent-up demand. In the event of rate reductions, I would take another look at home improvement chains such as Lowe, consumer finance companies such as Rocket Companies, and data analytics real estate firms such as Zillow. They are also in a good position to specialize in the transactional boom and the cycle of renovation. The construction material, smart home technologies, and even solar installers might get a boost as well, but I would keep it narrow to companies that are flexible, capital-light, and already have a solid grasp on how owners use homes.
That $35 trillion figure shows how much values have climbed since 2020. Low inventory has been a huge driver, and buyers paying top dollar during the pandemic created a big cushion of equity. Even with higher interest rates, home prices have stayed strong in most markets because there has just not been enough supply. For homeowners, it means they are sitting on a lot of wealth that they do not feel a need to touch while borrowing costs are still high. If the Fed drops rates, I do see people using that equity. A lot of folks have been waiting to refinance, move up, or remodel. Lower rates open that door again. We will likely see more listings and a wave of renovations. The pent-up demand is there, but it has been bottled up by the cost of money. If that shift happens, I think home improvement retailers, big lenders, and companies tied to housing materials benefit the most. Think Home Depot and Lowe's on the retail side and some of the major mortgage lenders who will see a surge in applications. It all comes down to how quickly and how much the Fed chooses to adjust.
That $35 trillion represents homeowners clinging to properties through high rates--my parents paid off early and I've watched clients hold tight too. When rates drop, I expect cash-out refinancing to explode based on what I've seen: pent-up renovations, debt resolution needs, and sudden mobility. Three winners? Lowe's for DIY upgrades during equity-funded remodels, Rocket Mortgage for refinance volume, and Opendoor for homeowners seeking quick exits--all feeding the housing ecosystem revival.
The sheer size of $35 trillion in home equity really reflects how much property values have soared over the last decade--driven by low housing inventory, strong demand, and historically low mortgage rates until recently. For homeowners, it means they're sitting on a lot of untapped wealth, but high interest rates make accessing that equity less appealing right now. If the Fed does start cutting rates, I absolutely expect a surge both in cash-out refinancing and home improvements--I've seen in my local market that homeowners get the itch to remodel or even move as soon as financing gets cheaper. As for stocks, I'd keep an eye on companies tied to home renovations and big-ticket retail like Home Depot, as well as financials like Wells Fargo that stand to benefit from increased lending activity, and perhaps even homebuilders like D.R. Horton if move-up buyers come off the sidelines.
The $35 trillion in home equity reflects the perfect storm we've experienced - historically low interest rates combined with housing inventory shortages driving unprecedented appreciation. When the Fed lowers rates, I expect a measured, not explosive, tap into equity as homeowners balance opportunity with caution after experiencing inflation's sting. For positioned stocks, I'd watch Lowe's and Home Depot for the inevitable home improvement surge, along with ServiceMaster for maintenance services - homeowners typically invest in their existing properties before considering selling in evolving markets.