Can’t call it a housing bubble without homeowners engaging in a deluge of home equity loans
With the American consumer swamped under a massive pile of record debt, it was only a matter of time before the sins of 2008 would be resurrected to try to keep themselves above water. ¬†And while several indicators have emerged that point towards a new housing bubble in data points such as higher prices and subprime lending, a third indicator has reared its head in these homeowners once again engaging in the use of home equity loans.
It seems as though the practice of using one’s home as a personal ATM machine is making a ‘yuge’ comeback of late thanks, at least in part, to the same aggressive lending terms and attractive teaser rates that nearly sank the world economy just under a decade ago.¬† According the¬†Wall Street Journal¬†and Equifax, home equity originations soared to $46 billion in 2Q 2017, the highest level since the market collapsed in 2008.
‚ÄúIf customers feel like their home values are stable or increasing, and if they feel like their job prospects are good‚ÄĒthat they will have the ability to pay back a loan they take‚ÄĒthen they will start to take out more home-equity lines,‚ÄĚ¬†said Mike Kinane, head of U.S. consumer-lending products at TD Bank. ‚ÄúThat is what we are starting to see.‚ÄĚ
Home-equity line¬†originations rose 8% to nearly $46 billion in the second quarter, their highest level since 2008,¬†according to credit-reporting firm Equifax . Borrowing via cash-out mortgage refinances hit $15 billion, up 6% from a year earlier, according to recent data from Freddie Mac. –¬†Zerohedge
Perhaps the rise of home equity loans should not be shocking in one sense, since 2017 represents the seven year point for many Americans who were victims of foreclosures following the 2008 financial crisis and subsequent Great Recession, and those stigmas have now been removed from their credit scores.
But the reality is the so-called economic recovery has been one only for the banks and big corporations, and the average American has almost completely missed out on all of this artificial wealth creation. ¬†And when you couple in the amount of trickle down inflation that has been prevalent in housing/rents, healthcare costs, education, and even most necessary items, the last remaining ‘atm’ they can tap into just to survive day to day is that of their home equity, which will one day soon end in the same repetitive disaster as that from nine years ago.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.