Prior to the 2008 meltdown, total home equity (the value of all homes minus all mortgage debt) in the U.S. peaked in 2005 at $14.4 TRILLION.
Last year, total home equity hit $21.1 trillion – crushing the 2005 record (here is a table showing total home equity from 1960 – 2020).
But this year, the numbers got even crazier, as Americans enjoyed an additional $5 trillion of equity building – putting the total over $26 trillion – according tothis National Mortgage News article.
Keep in mind that America’s total GDP (economic output) is projected to be less than $23 trillion this year, making total home equity larger than our entire economy!
According to CoreLogic, equity increased by an average of 30% over the last year alone.
WHY CASH-OUT?
We normally encourage cash-out refis for debt consolidation, home improvements, tuition payments, etc.
But – this time is different.
The economy is very uncertain right now because of our massive government deficits, massive trade deficits, major inflation threats, and significant underlying weaknesses as a result of the COVID pandemic.
DRY POWDER
In light of the economic threats, homeowners might want to tap into their equity while rates are still super low for several reasons:
12 Months Expenses in Savings. The rule of thumb is to ensure we have at least 12 months of expenses in liquid savings. This is particularly important if the economy is facing significant threats that might cut off our incomes for a period of time.
Cash for Post-Correction Bargains. Some of the wealthiest people I know are people who swooped in to buy up housing and stocks after the 2008 meltdown. They were able to do so because they made sure they held on to a pile of cash at all times. Today’s huge equity surges give all of us the opportunity to do the same, as stock market corrections are all but a certainty at some point.
Inflation Hedge. With such a high likelihood of inflation, a large fixed-rate mortgage can literally become “an asset” as I explain in this blog. If (and when) inflation sets in, wages will increase with it and dollars will become much less valuable, while fixed-rate mortgage payments will remain the same. This will make paying off the mortgage that much easier, and this is how so many boomers got rich riding the inflation wave of the 1970s.
The Wealthy Are Doing It. We have been seeing numerous, extremely wealthy borrowers either maximize their mortgages when they buy (even though they could easily pay cash for the entire home) or take cash out for the reasons I set out above. So, don’t just take my word for it. 😊
IS THIS BLOG SELF-SERVING?
Yep; it is very self-serving because it will no doubt generate a lot more business.
But – it is 100% sincere, as I practice what I preach, and, as I mention in #4 above, so do most of our most successful clients.
