Home equity levels among U.S. homeowners is at record levels, having hit $35 trillion, according to Federal Reserve data.
But with this added wealth on paper, those holding it aren’t necessarily feeling more financially secure. This is due to the upward march of property taxes, persistently high interest rates and other restrictions some families may not anticipate.
This comes from a recent report by The Wall Street Journal. Among the lesser anticipated consequences, high amounts of home equity can limit the amount of financial aid that some prospective college students are eligible for. Spikes in home values may boost a homeowner’s net worth, but notable increases in property taxes have also caused some to trim their discretionary spending.
“And cashing in on the wealth is difficult: High interest rates and prices have held back home sales — and the prospect of big capital-gains tax bills is spurring some to hold on to the homes,” the report stated.
Recent market volatility stemming from the White House’s tariff policies may be leading some homeowners to seek out more novel financial options, which could include home equity tapping. But tight lending standards and the persistent specter of interest rates may quash these goals before they can be fully met, the Journal reported.
And home prices, which reached historic highs in the runup to and immediate aftermath of the COVID-19 pandemic, have been trending in the other direction.
“Home prices have been cooling, especially in some parts of the country where they rose most in recent years,” the report explained. “Although that may eventually bring down property taxes, it leaves Americans with the prospect of seeing the wealth in their homes erode without ever tapping into it.”
While those who feel shut out of the housing market see homeownership as a goal to aspire to, current homeowners are feeling more financially squeezed due to these realities, said Rick Sharga, founder and CEO of real estate consulting firm CJ Patrick Co.
“Many homeowners are surprisingly still feeling financially insecure,” he said.
Generally speaking, homeowners also appear reluctant to tap into their home equity despite its meteoric growth over the past five years. Older homeowners may be more well suited to tap into their equity since they’ve been paying their mortgages for longer, and a larger share of this cohort is more likely to own their homes outright.
But senior-held equity has also taken a hit in recent months. It posted a modest decline in the third quarter of 2024 before enduring a more severe drop in the fourth quarter, according to data from the National Reverse Mortgage Lenders Association (NRMLA) and RiskSpan.
Older Americans may also have more diverse needs that could be addressed by tapping their equity, said NRMLA President Steve Irwin.
“A new study from the Center for Retirement Research at Boston College estimates that 30% of Americans would consider using their home equity to pay for future long-term care needs,” Irwin said. “This is encouraging news. The cost of getting in-home care can be significant, even for those who have planned retirement as best as they could.”
But the impact of property taxes and other pressures are real, and they could keep people on the sidelines of equity tapping for some time to come.
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