Consumers Resist Tapping Home Equity as Prices Rise

Bob Johnson: This week's chart focuses on the residential mortgage market. Since 2000, the mortgage market has more than doubled from $4 trillion to more than $9.5 trillion in 2008, moving in line with more transactions and as the prices of houses moved up. Then in 2008, when we hit the housing slump, residential mortgages declined by $1.5 trillion to about $8 trillion and really haven't come back despite--as you can see in the graph--the fact that prices have.

So, what's happened there? Let's take a look at the second chart. First, let's look at the top green line--that's what everybody thinks about when they think about mortgages. It's the new mortgages that you take out when you buy a home. Again, you can see the same trend there--the big runup to 2008 and the falloff--but still the number continued to go up. We were adding mortgages every year. But there are some other categories we'll talk about later that took the number down.

First of all, home equity also used to be a big contributor to mortgage growth. Those are the so-called second loans, the lines of credit that people took out on their homes that people used as credit cookie jars for spending. Now, that number has gone to about zero and is no longer contributing to mortgage growth and is likely to not do so even in the future. Then, we have mortgage charge-off, which many people think is the only reason the mortgage balances went down, but that's clearly not the case. It certainly was a factor in 2010 and 2011, but it's much less so now.

So, what does this all mean? It means that the consumers may have a chance to tap into some of the equity in their homes going forward, providing additional spending opportunities. It also means, with slow mortgage growth, that there will be more cash available for the rest of the economy and it will also help depress interest rates.