The real estate market is witnessing a stark divide between those who own property and those seeking to enter the market. While homeowners are sitting on record levels of home equity, prospective buyers are struggling with rising interest rates, low inventory, and high construction costs.
American homeowners hold $11.2 trillion in total equity, yet few are accessing it. Meanwhile, buyers face worsening affordability due to high borrowing costs and limited housing supply. According to Yahoo Finance, Intercontinental Exchange’s (ICE) Mortgage Monitor highlights how homeowners’ reluctance to withdraw equity is affecting the market.
Homeowners’ Equity Reaches Record Levels
According to ICE Mortgage Monitor, American homeowners collectively hold $11.2 trillion in available equity, with an average of $319,000 per homeowner, of which $207,000 is accessible. This marks a significant increase in housing wealth, providing property owners with strong financial leverage.
However, despite this equity, homeowners are withdrawing funds at half the historical average. Second mortgages have fallen by 26%, and cash-out refinancing has dropped by 69% compared to typical borrowing activity. The reluctance to extract equity is largely attributed to high interest rates, which make borrowing more expensive than in previous years.
Andy Walden, Vice President of Research and Analysis at ICE, highlighted that homeowners have withdrawn $476 billion over the last ten quarters, half the expected amount under normal conditions. This unused capital, which could otherwise stimulate consumer spending and economic growth, remains locked within property assets.
“Despite a two-year high for equity withdrawals in the third quarter, homeowners are still tapping their housing wealth at less than half the rate they have historically.”
The “Lock-in Effect” Restricts Housing Mobility
The lock-in effect is preventing many homeowners from selling their properties, further tightening the housing supply. Those who purchased homes when mortgage rates were lower are reluctant to sell and re-enter the market at today’s higher rates and inflated home prices.
This trend is significantly reducing housing inventory, making it more difficult for prospective buyers to find affordable options. Limited supply has also kept property values high, adding to affordability concerns. Without an influx of new listings, many buyers are priced out of the market, unable to compete with rising costs and strict mortgage lending criteria.
Buyers Struggle With High Costs and Limited Options
While homeowners enjoy record equity, prospective buyers face mounting barriers. The combination of low housing stock, high mortgage rates, and elevated construction costs is making homeownership increasingly unattainable.
Developers, who typically help meet housing demand, are also struggling. The cost of financing new construction projects has surged, making it difficult to build new homes in regions where demand is highest. This has further exacerbated inventory shortages, leaving buyers with limited and often overpriced choices.
A Divided Housing Market
The current real estate landscape highlights a growing divide between homeowners and buyers. While those who own property benefit from rising equity values, potential buyers face affordability constraints that limit their ability to enter the market.
The hesitancy of homeowners to tap into their equity has broader implications for the economy, as it restricts cash flow that could otherwise be used for investments or consumer spending. Meanwhile, the lock-in effect continues to limit housing supply, intensifying the financial burden on those looking to purchase a home.
