That seems likely since home values have soared during the pandemic and at the end of 2020, an estimated 46 million homeowners had a total of $7.3 million in home equity.1.
This drastic increase in home prices means a lot of homeowners are sitting on more equity than they have ever seen, leaving them to contemplate their options.
What does that mean for existing homeowners that have additional equity to tap into?
Let’s consider the possibilities.
- One option on the table is taking advantage of your home equity by borrowing against it, like a home equity loan/line of credit.
- Another is that clients with existing mortgages may attempt cash-out refinancing, allowing them to pull out any equity that they might have and use it at their discretion.
Though it may be hard for your clients to imagine their homes losing value as home prices continue to climb, both options come with some amount of risk.
What could those look like? While we don’t have a crystal ball, the following concerns seem very possible:
- 2022 housing market predictions from Fannie Mae says it expects U.S. home sales to end 2021 a bit higher than they were the year before and the multiple economic effects of the coronavirus pandemic to dampen the market well into next year.
- Others are declaring a crash, which was exactly what happened a decade ago during the housing crisis. Property values plunged, having a major impact on homeowners who borrowed against their equity and leaving many people upside down on their mortgages.
Bottom line: we don’t know exactly what will ultimately happen in the future housing market; however, it’s smart to prepare for home equity options to become much less accessible than before.
Take the recent news of Wells Fargo, the largest U.S. mortgage lender, suddenly canceling clients existing home equity lines of credit as well as no longer accepting applications in the future.
Will other banks quickly follow suit?
It’s wise to remember that as we have seen in the past year, the economy and circumstances are changing all the time.
All we can do is stay on top of these changes and plan ahead for our clients, as best as we can.
Watch now to hear what our partners at Fairway Mortgage are advising everyone to do right now.