Households Are Finding Equity In Their Homes Impossible To Tap

The biggest selling point of homeownership is that it builds wealth while renting is wasted money. But as I pointed out last month, the math for mortgages often just doesn’t work out that way. The conventional 30-year mortgage is front loaded with interest and is appreciation doesn’t outpace that interest, it takes as long as 15 years to actually sell a house for enough money to actually produce a cash return. A recent Wall Street Journal article highlights other challenges faced by homeowners who are trying to access equity in their homes, higher borrowing costs and risk resistance by lenders, higher property and capital gains taxes, and concerns about the volatility of the housing market.

According to the article, “home equity has climbed nearly 80% since early 2020—up from $19.5 trillion—thanks to a turbocharged rise in house prices. That was about twice the rise in financial wealth including stocks and bonds as of the end of 2024, according to the Federal Reserve.” And ICE Mortgage Technology found that the average homeowner paying a mortgage has about $313,000 of equity.

It’s important to remember what “equity” in a home represents. Generally speaking, equity is the difference between how much a house can be sold for in the market, and the amount left to pay on the loan. A house that is worth $500,000, for example, with a loan balance of $200,000 has equity of $300,000. To access that wealth, a household would have to sell the home, or it could borrow against that money, something usually a home equity line of credit.

When it comes to taxes, equity doesn’t really help since property taxes like any other cost associated with maintaining a home must be paid in cash from household income. One household in the story had their property tax rise 50% after they bought the home, costing them $1,750 a month. And taxes, unlike other maintenance costs, like replacing a roof or landscaping, can’t be deferred and property taxes almost never go down.

Borrowing against the equity, a Home Equity Line of Credit or HELOC, is just like any other kind of borrowing. A lender has to evaluate the risk and then it charges interest. Interest rates are high now. So, to make a fix on the roof using existing equity means refinancing at current rates and higher monthly pay back costs. Taking equity out essentially lengthens overall payback. That $500,000 house in an early example, if the household took out a HELOC, might have a balance at sale of $450,000 meaning the return for the sale would only be $50,000. And according to the Wall Street Journal story, many backs are denying these loans worried families are overextended.

What about selling the house? The problem with this strategy is the obvious question, “Where do those people live now?” If they need a comparable house, they could find themselves paying another mortgage with higher interest rates that what they are paying now. Tapping existing equity through a sale simply may not be possible, and if it is, a household usually has to borrow again to find place to live or rent. And if interest rates are high enough, buyers may not be easy to find, and the sales price might drop enough to shave off any equity available.

One line in the story encapsulates the problem with the American Dream of wealth through homeownership: “[Americans] have amassed $35 trillion of wealth in their homes, yet many feel less well off because of it.”

For most households doing the day in and day out of life in American, working and paying bills, the idea of pulling equity from a house might not ever come up. If wages keep up with expenses and there are no big life changes or significant economic problems, the household might find itself 30 years after making their first mortgage payment sitting on a pile of wealth. But events like a pandemic or wild market fluctuations because of tariffs that impact jobs and interest rates can complicate even the most consistent household.

By now we should have learned our lesson, especially after the crash of 2008: we need an alternative to traditional 30-year mortgage. Cooperative and fractionalized ownership backed by government is one answer I’ve proposed. There is always risk in borrowing, but equity once gained shouldn’t be difficult or impossible to tap.