Homeowners reverting to 'old normal' could drive up home values

by Candyd Mendoza15 Apr 2019

Bloomberg columnist Conor Sen theorized that two factors might push homeowners to go back to their old ways, embracing debt and using their home equity.

Sen examined the probability that homeowners in the US might embrace debt and upgrade again now that memories of the financial crisis are starting to fade.

In his theory, Sen proposed that low interest rates and a wave of tech initial public offerings might set off a trend toward equity access, specifically cash-out refinancing.

He said that when the wave of tech IPOs such as Uber, Pinterest, and Lyft go public, it will give employees billions of dollars in buying power. Some will be channeled toward the housing market as tech employees utilize their IPO money as down payment to purchase a new house.

In addition, the decline in interest rates has led to a ripe spring homebuying season.

“Those two catalysts could drive up home values,” Sen wrote. “That would have much larger ripples if homeowners revert to an ‘old normal,’ being opportunistic about home equity and interest rates to treat their homes as vehicles for financial engineering.”

Home equity levels have moved up nationwide, and it left a good deal of money for homeowners who want to restructure their debt or make a big purchase.

“The further we get from the financial crisis and as memories of that era fade, the more homeowners will be receptive to these types of scenarios,” he wrote. “Even as a large part of the economic story this decade has been a rise in private tech company valuations and a recovery in home prices, we generally haven’t seen either store of wealth tapped by households. In 2019, we finally may.”