Demand for HELOCs Collapses to 15-Year Low

American homeowners have learned a lesson, despite what banks and the Fed want them to do.

When you google “HELOC” the first batch of entries that come up are ads trying to get you to take out a HELOC. The most aggressive advertisers that outbid all others in my sample of one were: Lending Tree, the “home equity” division of J.P. Morgan Chase, and Quicken Loans. Then it’s lender after lender offering enticing terms. It’s not like HELOCs – home equity lines of credit – are playing hard to get or anything. But demand has collapsed.

At the end of February, outstanding HELOC balances at all commercial banks in the US fell to $346 billion, according to the Federal Reserve Board of Governors. They’re down 43% from the peak in April 2009 – and now back where they’d been in July 2004 on the way up. This marks a decline that has now lasted 10 years:

These balances are not adjusted for inflation – neither for consumer price inflation nor for rampant home price inflation, which makes this trend that much more astounding. That was a bubble that burst in 2009. And the Fed was never able to reflate it – despite record low interest rates, and in many markets record home prices.

Housing-related debt peaked in Q3 2008 at $10 trillion. HELOC balances were 6.1% of the total. Housing debt in Q4 2018 stood at $9.5 trillion. HELOC balances were down to 3.6% of the total.

From 2002 till the peak in April 2009, HELOC balances had soared by nearly 300%. It was a bubble whose time had come. Homeowners were using their homes, whose prices were soaring, as ATMs. This money was plowed back into the economy in form of consumption, or was used as down-payment for rental properties, or was invested in the latest story stock.

The housing-and-mortgage crisis annihilated those dreams of the endless ATM. And it seems, Americans learned a lesson – a lesson that neither lenders nor the Fed appreciate. The lenders make money off HELOCs, and so they push them. And the Fed wants consumers to borrow against their homes and spend this money, according to William Dudley, when he, at the time still president of the New York Fed, was lamenting this “evolving consumer behavior.”

The chart below shows the furious HELOC bubble and the subsequent decade-long decline in terms of year-over-year percentage changes in the balances. It is interesting how in 2006, growth halted, and then came a final spurt in 2008 and 2009, perhaps as homeowners who’d lost their jobs were using their HELOCs to fund their mortgage payments and expenses, until the banks put a stop to it:

During the mortgage crisis, Americans have learned in invaluable lesson: Credit card debt is unsecured, and the lender can sue the borrower and get a judgement and can try to collect before the borrower files for bankruptcy protection; so wish the lender good luck! But a home equity line of credit is a loan secured by a home, and the lender doesn’t have to sue the borrower to collect, but can foreclose on the home.

HELOCs carry lower interest rates than unsecured credit, such as credit cards, payday loans, or personal lines of credit. They’re a legitimate, and in some cases a smart way to borrow. But there’s a big risk: the homeowner puts the house on the line.

How Americans have abused HELOCs as ATMs before the mortgage crisis, and how demand for HELOCs has since then collapsed — despite all efforts by the Fed to stimulate this sort of borrowing that leads to consumption — is one of the more interesting long-term shifts in consumer behavior to come out of the crisis.

The San Francisco Bay Area and Seattle lead with biggest multi-month drops in home prices since 2012; San Diego, Denver, Portland, Los Angeles also show declines according to the Case-Shiller Index. Others have stalled. A few eked out records. Read…  The Most Splendid Housing Bubbles in America Get Pricked

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  100 comments for “Demand for HELOCs Collapses to 15-Year Low

  1. Rabbit says:

    Pretty sure TCJA has not helped either.

  2. RD Blakeslee says:

    As times grow more uncertain, homeowners are apparently appreciating the intrinsic security their owner-owned homes affords them. They are unwilling to compromise it. That’s good news for the country (excluding the banking sector).

    Wolf, do you know if there’s also what would logically accompany this trend: A reduction in so called “reverse mortgages”?

    • Javert Chip says:

      My wild guess is this type financing is expands as retired boomers run out of other assets. Be interesting to see Wolf’s perspective.

    • Wisdom Seeker says:

      RD Blakeslee, I think the victory lap is premature.

      First, reverse mortages and equity-sharing “co-ownership” deals are on the rise, not declining like HELOCs.

      Second, homeownership as a whole is down. More rental properties and fewer resident owners. If landlords of the rentals are less inclined to use HELOCs, that explains about 1/4 of the drop in HELOC balances.

      Third, demographics. 10 years of aging the population have shifted many more owners into retirement age. But HELOCs, like mortgages themselves, make more sense for young families than for retirees. Retirees are looking for cash-flow investments, not cash-draining liabilities.

      • RD Blakeslee says:

        Don’t know what “victory laps” have to do with a citation of a statistic … anyway, do you think the bar chart is wrong?

        It shows a large decline in reverse mortgages, between 2009 and 2017.

        You mention equity sharing co-ownerships, apparently summing them with reverse mortgages, asserting (apparently) the sum is “on the rise” Citation of statistics re co-ownerships, please?

        • Wisdom Seeker says:

          Your graph shows decline in issuance. Total outstanding reverse mortgage (numbers and/or debt) is increasing.

          Posted some data on co-ownership above. (Pending moderation, thanks Wolf!)

          I also think that in terms of college financing there’s been a shifting from parental-HELOCs to federal student loans. Especially with all the chatter about loan forgiveness. Who wouldn’t want a shot at free money?

          Bottom line is that declining HELOCs are not telling the whole story. Total household debt per member of working age population has been rising since 2013.

        • MaryR says:

          The banks here in South Florida are leary of reverse mortgages in older condo complexes. As owners died in the past few years almost all of these went to foreclosure as values were below the amount owed and banks lost huge sums.

          Now, banks review the solvency of the condo association, percent of renters, and other metrics, which makes it difficult to get a reverse mortgage despite value appreciation. We own outright and have no kids so we would like the option someday…

      • alex in san jose AKA digital Detroit says:

        You’ve got people born in say, 2000, who have never experienced the kind of good times there were pre-crash. Think about it: They were 7 or 8 when the economy crashed, and now they’re 17 or 18, and unless they’re in the top 10% they’ve grown up with either stagnation or decline.

        Call them the “Cautious Generation”?

  3. Auld Kodjer says:

    This is a nice reminder that there is a tendency to under-estimate the intelligence of the electorate, and over-estimate the intelligence of the elected

  4. Wendy says:

    The average age for a baby boomer in 2007 was 56. Still working, and making a wage to pay off a loan. HELOC’s burned them in 2009, but perhaps the less obvious factor is that no matter how low interest rates go, the average age of the baby boomer is now 68, and nobody in that age category is interested in taking on any debt, even if interest rates are 1% or less.

    I would also argue that this same phenomenon is why the stock market, having recovered from the depths in 2009, climbing from despair, through skepticism, then optimism, has not gotten to euphoria, for this very same reason. Retired folks are not going to risk getting in over their heads with margin or aggressive buying at a time in their lives when they are no longer working, and can’t afford to be wrong, and won’t be able to rely on income from a job to recover.

    I never much subscribed to demographics driving an economy, but being in the ‘46 to ‘64 group, I can now understand why low interest rates no longer stimulate the economy like they used to, or are supposed to do, mutch to the consternation of the FED.

    • Bobber says:

      The stock market has not reached euphoria? Really? Several gauges of market valuation are showing levels that exceed the peaks before the Great Depression, the 2000 bubble, and the Great Recession.

      • cd says:

        link please
        fwrd PE on SPX is much lower than Dot com peak….

        • andy says:

          And 5-year forward p/e is even lower.

        • Bobber says:

          Margin-adjusted Schiller PE is highest ever. Also, S&P 500 price-to-revenue (one of Buffet’s favorites) is off the charts. If you haven’t been following this stuff, you should read Hussman’s free monthly market comment to get the best sense of where we are with respect to historical valuations. In short, valuations are nothing short of obscene right now.

          Forward PE is unreliable noise. Annual earnings flip flop all over the place. Also, why would you extrapolate off a forward projection? It’s like putting one stool on top of another.

        • Wisdom Seeker says:

          You can’t used forward PE to gauge euphoria since it’s based on a projection which itself is sensitive to that euphoria. The folks generating the estimates are biased, far from objective and certainly not accurate at market turning points.

          Now go look at metrics that aren’t sensitive to opinion. Trailing P/E, price/book, price/sales, growth rate of actual GAAP earnings… all are screaming “overpriced market”.

        • RW says:

          Also, I don’t think stated earnings are comparable to historical numbers. Earning have been goosed by unprecedented levels of share buy-backs (mostly on the back of increased corporate debt at very low interest); financial engineering which seems to get more creative by the year (1-time charges anyone?) ; tax cuts and cost-cutting. It’s fairly clear a large fraction of earnings gains are not based on actual organic growth of the companies in total revenue or profits.

          I haven’t really seen an analysis which seems realistic to me about how this will play out. Companies clearly can’t keep playing this game forever, but will they at least be able to maintain this “new normal” or are we looking at a reset to more historical norms? Will most corps continue to be able to roll over debt at low rates (I think there will be huge efforts on the part of gov & central banks to make sure they can), or is there a deleveraging in store.

      • Wendy says:

        We are nowhere near euphoria. When your Uber driver starts giving you stock recommendations, then I would worry. Is the market overvalued? Yes. Are people stampeding into the market like 1929 or 1999 with no regard for risk, after what happened in late 2018? Euphoria is an all-in mob mentality, not a peak on a Hussman graph.

        • ArtV says:

          Remove corporate buy backs from the market and we would see how euphoric things really are. :-)

        • IdahoPotato says:

          What we have is a big spike in the corporate equivalent of HELOCs. Leveraged loans, buybacks with debt, etc.

          Corporate euphoria has replaced individual investors, though there are many ready to “buy the dip”. Boeing dipped from $422 to $365 yesterday and was back to $399 in the blink of an eye.

        • Bobber says:

          Good luck.

        • Wisdom Seeker says:

          Wealth inequality matters here.

          Taxi drivers in 1999 could afford to stampede into the market.

          Today’s Uber drivers frequently can’t afford to replace the car they’re driving into the ground to give you a cheap ride.

    • The Fed and the central bankers turned the U.S. stock market into a pure ponzi. Without all their manipulation the stock market would be making new lows with each passing year. I believe we are still in a long term bear market dating all the way back to the dot-com crash.

      • Horatio Alger says:

        I believed the same as you for a very long time. But now I believe that once the locus of the financial crisis passed from the banks to the currency, the stability of the value of cash has become worse than the stability of equities. If you had to choose between holding cash or the S&P 500 in the face of the coming inflation, which would you choose?

        • Roaring Mouse says:

          Depends on rate of inflation and equity earnings multiple. Predictable relatively low annual inflation (less than 10% per annum)? Equities would be preferable under most valuation multiples. However, if inflation spikes above 10% with a probability of incremental spikes, I’d rather have cash.

      • Ed says:

        The Real Tony – The stock market has outperformed the aggregate of housing, gold, and oil over the past 20 years. The stock market has real inflation adjusted returns of over 6% which surpasses price gains in hard assets.

        Going out over the next 20 years, my guess is that the stock market continues to have 4%-6% inflation adjusted returns while oil, real estate, and gold suffer pretty significant price drops.

    • Julian says:

      They need to put interest rates negative if they want to stimulate spending.

      Put interest rates to -5% and you watch everyone spend their money.

  5. Michael says:

    Helocs have collapsed over the last 10 years because they’ve been harder to get i.e. lower LTVs, full income verification n tighter credit standards
    Prior to 2008 they were giving them away at 100% LTV , no income verification n little credit standards
    You could get 125% financing back then
    100% 1st and a 25% heloc on a purchase
    Two different worlds with two different results

    • IdahoPotato says:

      Almost everyone I know has a HELOC. All our balances on it are 0.

      The reason I have a HELOC is because of instances of mortgage fraud wherein scammers can easily scan the records to find a list of paid off homes, then come up with fake documents to open a loan against the home and leave the real owners on the hook for a loan they had no idea existed. The manager of my credit union is familiar with this kind of operation.

      Having a HELOC ensures that the lender will be notified of this after a title search.

      • Paulo says:

        I have a LIC at a slight premium (1/2%) over a HELOC. I seldom use it, but it sits there attached to my chequing account just in case I need emergency funds and everything is closed, etc. Whatever. They wanted me to get a HELOC when I first asked for this credit but I haven’t had a mortgage for over 20 years and don’t ever plan on another. Could a person use a CC instead? Certainly, but who wants a CC balance that might be too big to whittle down right away? I obtained the LIC when I renovated a home and I used it last year to build a small rental. It functions like a pre-approved loan you never have to use and if you do activate it, it provides flexibility to pay it off right away without penalties, guarantees, or hassles.

        I haven’t used it for almost a year.

        As far as I’m concerned this is just ‘old style’ banking where the bankers know their clients and accomodate them. In this case I knew the lady who ran the loans department for the local credit union. I remember when I was a kid (55 years ago) and my Dad was in business he could go into the bank and ask for immediate funds if his receivables were late or in process. Sometimes it would just be a quick phone call. The amounts weren’t huge, but the service was freely offered. In today’s world customers are just numbers and scores and are treated accordingly.

        I have to buy a new vehicle this year. It’s looming. A LIC or HELOC is an option for flexibility. You don’t have to cash out term deposits or take a loan out. You can use a HELOC or LIC and pay the purchase off asap. At least a person has choice with this vehicle, (pun intended).

        Good positive article and comments.

  6. Some Guy says:

    I guess if the U.S. peaked at 600bn, and Canada’s economy is 1/10th the size, the equivalent would be 60bn, I guess 80bn CAD.

    But last I heard, the Canadian total was over 200bn CAD.

    Luckily, North of the border, real estate only goes up.

    • Wolf Richter says:

      Yes, Canadians didn’t get a housing bust, so they went full bore on HELOCs.

    • Nick says:

      I’m an immigrant up here, and I know people who have HELOCs even though they actually have no home at all . . . I had never heard of an unsecured line of credit prior to meeting them, I’ve got no idea what the banks are thinking. In fact, I have a LOC myself (balance zero), just because Scotiabank gave me one.

      • nick kelly says:

        Yes you have line of credit LOC. But if you don’t have a home you won’t have a Home Equity Line of Credit or HELOC.

        The rate LOC from Scotia ( I have one too) is substantially higher than their HELOC, because the latter is secured.

  7. Grahman Richard says:

    What about the tax law changes?

  8. Rowen says:

    How of much of the drop in HELOC demand is a result of the expansion of conventional mortgage loans for uses that were previously funded by a HELOC?

    For example, i remember when people used to do 80/10/10s or something of that sort, whereas now they can just use a conventional 97. Or there’s no need to get a HELOC to renovate the home when the GSEs will just write the renovation loan. Or the cash-out refinance?

    • Bankers says:

      I spent an hour looking through data from all sources I could find and it is a mixed picture. Though total volume of heloc and home loans are both decreasing, and delinquency is flatning off low now from highs, new originations are actually increasing. Some think the better quality loans are being turned in but low quality is what is left on the books, and lending sites think that there will be a new heloc boom . The amount of tappable home equity has peaked also, could continue up if re prices rise or rates drop I suppose.

      Looking at other credit which has expanded and severe delinquency has started to rise on credit cards, auto loans etc . I could not say if this is just product of lending blitz or if a segment of the population is getting stressed.

      In aggregate the picture looks betterish regarding home equity compared to pre gfc , but as Wolf points out there is a large disparity in circumstance between income groups.

      has some main information.

  9. Ronnie says:

    Howard Hughes dad told him, “never use the Tool Company as corratrol.”

    Made a fortune on boobs. Cross your heart bras.
    Only once did he gamble the company….but was backed by the US Navy. The secret submarine salvage ship. Happened they needed it two years after it was launched.
    Meanwhile an old friend sold the inside walls of his home to buy an E type JAG on finance. Went broke , sold the car, did a runner.
    5 years later won the LOTTO….bank said sorry son you owe a lot of folks a lot of money and the interest is gonna kill the win.
    You get that, with greedy fools.

    • MC01 says:

      I strongly suggest you read the book “Blind Man’s Bluff” to learn the history behind the Glomar Explorer.
      Besides being one of the best and most compelling books about the Cold War you’ll learn Howard Hughes and his companies were on the hook for approximately zero dollars on that useless behemoth. You’ll also learn how and why the US Navy wanted absolutely nothing to do with the Glomar Explorer in the first place and how it was a CIA operation which according to the authors had been set “for Richard Nixon to pay back his enormous debts to Howard Hughes”. The same authors later allege that “it was hard to tell where the CIA ended and Howard Hughes’ financial and industrial empire began”.

      Howard Hughes may have been madder than a March hare but he knew a thing or two when it came to engineering and money.

      • Bankers says:

        Slightly OT, do you have any estimate on how long 737 800 Max aircraft are going to be grounded, if the grounding will only be MCAS related (which Boeing are preparing a software/procedure update for) or if will wait for full result of investigation into Ethiopian is released and questions of wider system stability ruled out ? The way this is arranged now looks like accepting just MCAS changes before final report will seem arbitrary.

        • Paulo says:

          What can go wrong with complexity? My son commutes bi-weekly on Westjet and they operate a few Max. I told him to phone the airline and start complaining about their fleet. Ask. Sure, the 37 has been a fantastic machine for decades, but until this is ironed out you couldn’t pay me to get on one. He could go Air Canada and hop an Airbus or Q400 on the same route.

        • MC01 says:

          I’ll be brief: regardless of the true causes of the crash (and the final report on the Lion Air crash is expected to be filed in August, imagine how long will it take for this one) aircraft authorities are reacting to public opinion, not hard data.
          I’ll be brutal here: had the aircraft carried ordinary commuters instead of UN and NGO people it would have been “just another” aircraft crash. But the media started running all sorts of horror stories about MCAS with little idea of what they are talking about and as it always happens things took a life of their own.

          When Air France 447 crashed in the Southern Atlantic in 2009 the media immediately blamed the pitot tubes, but the final report put the most emphasis on human error, especially the lack of “hands-on” experience on the type of the relief crew who was flying the aircraft at the moment. And I’ll refrain myself from starting my usual de Havilland Comet tirade: it wasn’t the funny-looking aircraft nor the jet engines which caused the crashes, just some old fashioned metal fatigue.

        • Bankers says:

          I agree on the complexity of systems and especially where there is no room for error. Even after a cockpit visit decades ago just noticing the sound of disc drives running in background made me very uncomfortable, and that was well before we reached the current level of automation and fly by wire. A lot of safety has been added by these systems but there are limits, especially when design parameters separate from basic piloting requirements and are handed over to sophisticated solutions as a means to simulate the previous experience.

          Well its a very unhappy scene and I don’t like to speculate, and I think you are a pilot yourself so I would not be able to add much either.

          For those who are not up to date on the technical side there is a good expanding log of details at

          as well as a sometimes heated related discussion in comments on related.

        • Bankers says:

          Last comment was to Paulo.

          MC01 – I don’t completely agree on that, there are several pilots who are starting to speak out on the question, public opinion after two aircraft losses under similar conditions from a recently introduced airframe would turn by itself, plus the regulatory authorities are cornered on this for if another aircraft were to come down on populated areas for example – you have a wider concern from the population.

          Personally I cannot argue either way as it may well be unrelated circumstance as you describe re. past events, but the sentiment (which is admittedly partly fuelled by other interests no doubt) is its own. People are not going to want to fly on, or have flying, an aircraft that repeatedly crashes. They would rather it wait until it is understood why and is corrected, whether that is the right approach or not.

        • nick kelly says:

          ‘I’ll be brutal here: had the aircraft carried ordinary commuters instead of UN and NGO people it would have been “just another” aircraft crash.’

          Now I’ll be brutal: Love your tech stuff but this is beyond absurd.
          Two crashes within months of almost new aircraft of the same
          type under the same circumstances, i.e. shortly after take off.

          ‘Just another crash’ is smear of the industry and the investigators as well as questionable taste.

          Was Air France full of ‘ UN and NGO types’ too?

          If not why did they spend a fortune looking for the wreckage on the ocean floor, instead of saying ‘just another crash’

        • Juanfo says:

          Completely unrelated thread derail but thank you for asking this question.

      • Bondo, James Bondo says:

        A good novel plot would be that HH passed away before he became a recluse. Unknown secret agents hire a body double to grow long hair and nails and control his billions. Indistinguishable from the public facts of the case and much more pleasing than an old-man-went-nuts and hired someone to catch flies in his apartment.

        • nick kelly says:

          I’ve read a LOT about Hughes, most of the serious published stuff.
          The idea that he was frugal and wouldn’t bet the company?
          He did just that when he ordered a huge fleet (80?) airliners without any idea how they would be financed.

          This sent the brass at Hughes Tool into such a panic that all their internal power struggles were put on truce.

          When the first two of the new Constellations were almost ready and Hughes STILL hadn’t got financing he seized the planes!

          His goons just wheeled them out! The maker put up with this as Hughes was the only customer. The main hold up in arranging financing was Hughes refusal to appear in person. One banker, who might have ok’d the deal told him: I like to meet the man I’m doing business with.

          As for the flies in his room: one Christmas day the designated fly person was at home when Hughes called: there was a fly.
          To be on the safe side, the guy killed a fly and brought it with him.
          After half an hour finding no fly (there prob never was with air filters etc. ) he produced his fly.
          Hughes nodded; ‘OK. Good work. But next time make it a fresh kill’

        • RD Blakeslee says:

          Damn! I use Terminex …

      • Lion says:

        Great book, it was very educational reading that

  10. William Smith says:

    “Fed wants consumers to borrow against their homes and spend this money” : all of this is really on the continuing theme of trying to increase the number of debt slaves (as per other articles on this site). In the past, control was exercised by brute force of a feudal chiefdom, then more subtly by religion. Maybe people are waking up to the fact that financial control levers are being used to enslave them. This article gives me hope that maybe the penny is dropping (figuratively & literally). I wonder what control methods they will invent next when reckless aspirational consumption fails as an “opiate of the masses.” They (corporates/elites) have also tried outright lying but the recent scandals about fake-this and fake-that have shone a spotlight on that little game. The best slaves are the ones who don’t know that they are a slave. There will always be simpletons, but you can’t fool all of the people all of the time. The EU has shown that NIRP doesn’t work, so what is left? I can’t wait for the next scheme from these genius “economists.” It will be quickly exposed on this web site, I’m sure.

    • Ed says:

      William Smith – I think the end game is allowing everyone to go bankrupt and social unrest to ensue. The gov’t/elites will confiscate all assets and force a police state. Everyone will be given a modest apartment and free video games/netflix subscription and nominal amount to spend on various entertainment.

      The elites will live in highly secure communities in the mountains in Colorado and Northern California which will be defended by drones. The internet will be censored and history books will be rewritten.

      • Julian says:

        Lol. Whatever.

        Things are pretty good at the moment and the economy is set to boom over the next 4-5 years as soon as Trump signs a trade deal with China in the next couple of months.

      • RD Blakeslee says:

        “The elites will live in highly secure communities in the mountains in Colorado” … under a magnetic shield. Atlas Shrugged – Ayn Rand

      • Marko says:

        Sounds like a step up for me.

    • I recall when Greenspan first proposed the idea of unlocking home equity, which i was thinking, on paper this is a good idea. Like all good ideas it had a few stumbles, but a home equity line remains an economic benefit. It has removed the home as an investment, which is probably a good thing. It also has established the house as a deteriorating asset, like the car, and it has probably opened the way for new home building technology. The creating of “phantom” collateral after 2008 pretty much finished the process of defining “home value”. Now I can check Zillow for short term price changes, and recognize my home is like everyone else’s in the neighborhood, a commodity. Seems like a good idea.

  11. Bobber says:

    I wonder if that decent increase in Helocs in 2009/2010 was from people buying stocks that had dipped in price (and were destined to dip further). That’s my guess.

  12. WES says:

    The first thing that comes to my mind is maybe this is one of those unintended consequences of central bank’s “financial repression”?

    • MD says:

      HELOCs are a paradigm of usury and greed in the private financial sector; nothing more or less.

      Failure to identify root cause will result in failure to apply corrective actions…which is precisely why so much time and money is vested in convincing people such as yourself that the root cause is regulation and state intervention in free (ha!) markets.

      Sadly, the evident efficacy of this propaganda means that all the time the power of the banks and financiers grows, as the wealth and income gap does the same.

      Result? People in yellow vests who’ve had enough of being told that what’s good for the wealthy (corporation or individual) is good for all of us, when it’s blindingly apparent that this is not the case, nor has it ever been.

      • Will says:

        1/2 TRUE 1/2 DELUSIONAL…
        TRUE: Using a HELOC for that Awesome 16 seater Jacuzzi, the tummy tuck & nose job, or the 128′ TV for the $23,586 man cave simply stresses a HELOC and wont end well
        DELUSIONAL: Using a HELOC to accelerate mortgage payoff, put money down on a cash-flowing rental property, then repeating several times is a relatively secure way to do what we did; Acquire 6 rental properties cash flowing over $5,000 per month.
        NOTE: If used correctly, HELOCS are the best way to retire early.

  13. California Bob says:

    I’m too lazy to look it up, but didn’t the ‘Tax Cut for Corporations and Billionaires’ put some limits on what you could do with a HELOC? In particular, now you can’t use the interest on just any purchase as a tax deduction?

    I bought a car on time with a HELOC, and was able to deduct the interest, but I believe that’s no longer the case.

    • Max Power says:

      The tax law change is a relatively recent one. It does not appear to have made a significant change to the overall trend of declining HELOC balances since the GFC.

  14. will says:

    “Housing debt in Q4 2019”

    I think you mean “Q4 2018”

  15. G says:

    I thought I saw a case where Supreme Court ruled Helocs couldn’t be discharged in bankruptcy due to abuse.

  16. Max Power says:

    Inflation-adjusted housing debt is down nearly 20% since 2008 while practically all other types of non-consumer debt has exploded.

    Basically, consumers have been relatively prudent with respect to debt since the GFC (with the notable exception of student loans). Government and corporates on the other hand – not so much.

    Speaking of the unprudent… It seems to me that leverage in the nonfinancial sector might be the biggest, yet under-appreciated risk to the economy right now for two reasons: 1 – Much of it is just above investment grade. A slight economic air pocket might bump a lot of it below IG which will force many instutiutional holders to shed it en-masse. 2. The lack of converanrts associated with much of this debt means that in a downturn there will be little forwarning of this debt defaulting. Instead, companies will start missing interest payments all at once in a waterfall pattern.

  17. John Beech says:

    HELOCs weren’t part of HARP, so the lesson was bitter and long. My pet theory has to do with behavior returning to trend had they been folded in.

  18. Rory says:

    Wolf, slight disagree with you on the implications about CC debt vs HELOC in the risk shifting from Lender to consumer given unsecured vs secured. If you own a home and default on any kind of sizable CC balance ($2k+) you will definitely get sued and they’ll get a lien on your house. Unlikely, and often illegal, they foreclose via the lien, but given the difference in interest rates (upwards of 20%) I would say no question taking on CC debt is way riskier for the borrower than a HELOC. Especially since bankruptcy isn’t an easy route if you own a home, or have any kind of assets.

    Now, funding any kind of discretionary consumption with debt is stupid, but I would advise anyone with CC debt to pay it down with a HELOC. Double if you can deduct the mortgage interest still.

    Thankfully never had to use it for CC debt, but I killed my HELOC when the new tax bill killed the mortgage deduction.

  19. WILL says:

    I LOVE HELOCS…below is why;
    Its basic math; with a 25K HELOC & duel salaries totaling $5,800 -expenses of $3,300 month, heres how we’re retiring early:
    1. Make a 15K PRINCIPLE ONLY mortgage payment
    2. Salaries & expenses come from/go to HELOC
    3. Since we bank $2,500 more than we spend, simple math AND reality have tgat 15K HELOC balance to $0 in 7 months.
    4. Month #8, make a 15K PRINCIPLE ONLY payment aaand 7 months later, do it again.
    Thats how we’ve accumulated 6 rental properties cash flowing $5,200 per month. From a salary prospective, thats $62,400 per year cash & equivalent to a $91,000 job befoe taxes.

    • Bankers says:

      Works as long as rental prices and property prices stay level or continue upwards – otherwise you get into cash flow and negative equity problems.

      From a moral perspective you are maybe outbidding other buyers by using so much leverage. If many with savings and access to mortgages (slightly richer or better established or “more mature”) or able to outbid newbies as prices rise from this go about snapping up the market for rental you end up with a two tier society of property owners and renters.

      That is human nature in the financial environment we live in, so I don’t get personal on this nor lay guilt, but it is just to say that there are consequences and limits to how this turns out on a wider scale.

    • Cynic says:

      WILL: kindly look up ‘Hubris’.

      Usually precedes: A Fall……

  20. pieter says:

    so as boomers get another 10 years older… what is going to happen to all of these expensive homes? On the top of the discussion panel the average boomer age is now 68. I keep reading that millennial adults that have purchased a home 63% regret doing via Bankrate survey.

    Can I deduct from this that housing will be on a downward slope for the next decade?

    I know my wife inherits a mid size farm in NC from her 72 old mother soon, but most of her friends and my friends parents will be moving into retirement facilities/communities over the next few years (FL)(NC/SC).

    • Mike Are says:

      Bingo! You win the eventual outcome award.

      Over-priced houses owned by aging boomers will come down in price. A sufficient supply of younger buyers will not exist to hold prices up.

      Of course as strong inflation continues, the relative price drop may be less. But the house as a retirement fund will not be near as fruitful as most had hoped.

      • RD Blakeslee says:

        “.. the house as a retirement fund will not be near as fruitful as most had hoped.”

        Agreed. Better to enjoy the house as your permanent abode. Arrange to live in it the rest of your life.

        Liquidity (“retirement fund”) is best provided for without selling the house.

      • Juanfo says:

        A lot of young adults getting older. Not all are miserable in their parent’s basement. A lot have been working their a** off for the last 2 decades. Saving and scrounging. Foregoing nice cars and vacations. Paid off college debt. Now with some money and stable jobs. Now it’s our turn to take a jab at the american dream. Now we want to live in a comfortable house in a safe neighborhood away from the toxic urban density. Ring ring ring smoke break over get back to filling fulfillment center orders. jjj

    • Wendy says:

      I believe you are right, there will be less demand for McMansions, and high State and Local Tax states will drive a migration to tax friendly states like Texas and Florida.

      The price of houses will drop in value, but the dollar decline may not be as much as people thought. When I sold my home in 2017 to move to a tax friendly state, I was thrilled to get $200K more that what I paid for it in 1994, but realized that the value of the dollar had declined so much in the interim, that I really lost money. If I were lucky enough to make more than $250K, then I would have had the distinct pleasure of having to pay a tax on the “gain”. So, technically real estate could decline 40% but the price decline in dollars might only be 20%, or none at all. This may seem fine and dandy until you realize that in 2030 a Big Mac may cost $25.

      I know several people that own expensive homes in NY that will never recoup their money now that the SALT deduction is gone. They want to move to FL, but they are not willing to discount their $5M home by 50% to do so, so they sit on it, which may paradoxically increase their risk of loss going forward, as taxes, upkeep and insurance costs continue. Not a good position to be in.

      • Ed says:

        Wendy – I think what may save some of the closer in Mcmansion neighborhoods is solid schools and easy commuting distance to downtown. All prime suburban real estate is pretty much zoned for single family homes exclusively, so there is a massive shortage of housing located within the boundaries of good school districts.

        I hate baby boomer housing and lifestyle, but it looks like we will be forced into one of those awful houses due to the economic segregation caused by single family zoning and the resulting “good schools”.

        Even with shifting demographics, the shortage of housing in good neighborhoods in very severe. In some cases, just driving across the street into a lesser school district cuts the price of a comparable house by several hundred thousand dollars.

      • Anon1970 says:

        The capital gains exemption on principal home sales has not increased since the law was changed in 1997. A $250K singles exemption was OK in 1997, even for California residents and probably still works in many of the “fly over” states, but I can look forward to a large capital gains tax if and when I need to move to more suitable housing.

    • Clete says:

      Here on the Other West Coast (Naples to Tampa) realtors generally sell houses to people who are bringing profits from selling their houses up north (on this coast, it’s mostly midwesterners, although the northeasterners are beginning to do their part to ruin the nice part of the state).

      If you can’t sell your McMansion (Or your $800K sh-tbox in Jersey or Connecticut), you’re not buying a house here for cash. SALT may have a moderating effect on home prices here, albeit with an accompanying dip in the local economy.

  21. Marko says:

    Can you please write a piece that shows HELOC levels in Canada?
    I have heard there is a lot more HELOC debt in Canada on a per capita basis

  22. Dave says:

    It would seem that many investments owned by us baby boomers are destined to drop. Years ago I could see the end of the classic car market, my children have absolutely no interest in cars I lusted for in high school.

    Smart people are going to downsize early from their large houses to get the most possible equity.

    People leaving California sooner than later will be glad they did in a few years.

    • Ed says:

      Dave – I agree with you. I think the sentiment change can be attributed to the emergence of non-mainstream news sites like Wolf Street. Instead of blindly accepting the establishment narrative broadcast on mainstream television, people are beginning to accept that perhaps the gov’t/elites don’t have their best interests in mind.

      A debt-fueled consumer economy only benefits the people at the top of the hierarchy who are generating passive income without having to do any work. My wife and I have zero interest in owning cars or big houses. We’d rather live in a small efficient townhome in a walkable neighborhood that will enable us to be financial secure by or late 30’s instead of late 60’s.

      • Anon1970 says:

        Services like Uber are going to allow older people to stay in their homes for more years.

  23. doug says:

    A national builder might want to specialize in retrofitting large homes into multifamily? and putting elevators in them….

  24. Rosebud says:

    Is the market Charles Ponzi … or A.P. Gianni?

    We know perhaps too much of Ponzi, and not nearly enough of Gianni*

    *Banker, established branch banking system and radical lending policies

  25. TrojanMan says:

    I bet these things explode once the housing market really gets going this year. Bay Area housing market ready to bulge with IPOs of loser companies but plenty of suckers to keep funding these zombies. Then it’s time to take a HELOC so you can buy another home when things crash. Need that liquidity to take advantage! Party on!

  26. David says:

    HELOC is a great tool when used properly. I am a commercial real estate developer and use my HELOC all the time to finance my projects. It is the cheapest money around and I leave the balance at zero when not needed.

    When you open the loan, I always say that I will use it in the future to renovate my home. Banks do not want you to use it for business because it does not add to your collateral.

    No one should ever use it to renovate or purchase consumer goods. If you can’t afford it, then wait until you can. Just my thoughts.

  27. pieter says:

    to continue on the the Boomers and Millennial issue of houses to be sold later by boomers (next decade) – how do Millennial afford such things when I read today on Zerohedge the following:

    While the debt levels accumulated by millennial eclipse those of the previous generation, Generation X, at a similar point in time, the complexion of the debt is very different.

    According to a 2018 report from the St. Louis Federal Reserve Bank, mortgage debt is about 15% lower for millennial and credit card debt among millennial was about two-thirds that of Gen X.

    However, student loan debt was over 300% greater.

    This should now be a top line issue…. this debt will never be discharged folks…. this Millennial generation is in a serious problem that cascades UP to Boomers needing to sell to the next generation. WOW. then farther into the article:

    The home-ownership rate for those under 35 was just 36.5 percent in the last quarter of 2018, compared with 61 percent for those aged 35 to 44, and 70 percent for those aged 45 to 54, according to the U.S. Census. The millennial home-ownership rate actually dropped in the fourth quarter compared with the third quarter, but was unchanged year over year.

    Interesting times ahead for sure.

  28. DC says:

    I took Heloc out last year rather than a refi. Saved all the costs of the refi, and over $100 a month in expenses. Frozen balance for ten years. Then sell, die or find options then. Cash available for emergencies without panic need to find it.

  29. joanrn says:

    identity theft is on the rise. equifax blatantly ignored their responsibility to protect us. most who have had identity theft or who are protecting their credit, have their credit locked up. this affects our behavior when borrowing. i can’t open a credit card for 20% off my purchase without a huge hassle. I believe consumer awareness of identity theft is part of the reduction in HELOCs/credit card debt.

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