Homeowners Stingy With Borrowing Despite Increasing Equity

June 14, 2019
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Photo: Unsplash/NeonBrand

The National Association of Home Builders reports that despite increasing equity, homeowners have been cautious to open new lines of credit.

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.

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