Housing Bubble 2.0: Home Equity Loans Soar To Highest Level Since 2008

Tyler Durden's picture

It seems as though the practice of using one's home as a personal ATM machine is making a 'yuge' comeback of late thanks, at least in part, to the same aggressive lending terms and attractive teaser rates that nearly sank the world economy just under a decade ago.  According the Wall Street Journal and Equifax, home equity originations soared to $46 billion in 2Q 2017, the highest level since the market collapsed in 2008.

“If customers feel like their home values are stable or increasing, and if they feel like their job prospects are good—that they will have the ability to pay back a loan they take—then they will start to take out more home-equity lines,” said Mike Kinane, head of U.S. consumer-lending products at TD Bank. “That is what we are starting to see.”

 

Home-equity line originations rose 8% to nearly $46 billion in the second quarter, their highest level since 2008, according to credit-reporting firm Equifax . Borrowing via cash-out mortgage refinances hit $15 billion, up 6% from a year earlier, according to recent data from Freddie Mac.

 

The main engine driving demand: rising home prices. The median sale price of an existing home rose to $263,800 in June, the highest on record, up 40% from $187,900 at the start of 2014, according to the National Association of Realtors.

HOme Equity

 

But, don't worry because the banks and loan officers re-inflating the housing bubble are here to assure you that it's all different this time around...

Banks insist the increased borrowing doesn’t herald a return to housing-bubble days when consumers came to view their homes as cash registers. Banks say they are being more cautious in how they make such loans and some add they are encouraging borrowers to tackle renovations or consolidate debt—uses that are considered investments rather than luxuries.

 

“We continue to watch what’s going on and the way it’s being done, but it’s much different from before the crisis,” said Tom Wind, head of U.S. Bancorp ’s home-mortgage division. Mr. Wind added that the bank expects this type of borrowing to keep rebounding because the equity in people’s homes is “meaningful and people want things like renovations.”

...because home prices appreciating at over 5x inflation is just 'normal.'

 

But perhaps the best example of why 'this time is different' is illustrated by the case study of Marc Yu of Atlanta who took out a home equity loan on his family's home just so he could afford the down payment on an 'investment property'.  See, completely different this time.

Marc Yu took out a home-equity line to buy an investment property, a house he now rents out at a profit. He has thought about paying off the line early, but instead decided to keep it open as long as interest rates stay relatively low.

 

“I wanted to use the equity” in the first house, rather than “it just sitting there,” said Mr. Yu, who works in digital forensics in the Atlanta area.

Seems like we've seen this movie before...

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NickyGall's picture

As shown in this article, on a nationwide basis, there is still a very significant portion of the United States that has not recovered from the housing market collapse despite the Fed's ultra-low interest rate experiment:

 

https://viableopposition.blogspot.ca/2017/08/unaffordable-housing-in-ame...

JackT's picture

Looking at the chart - We've still got 1/2 a cake left.

order66's picture

That's basically the Fed telling you that the original bubble prices were accurate and prices should never have fallen. Sure.

SHEEPFUKKER's picture

In Houston, it makes sense to borrow against your house and buy the boat of your dreams.

TheMexican's picture

Not that any body gives a shit.  I left the San Diego in 2004, to build a villa in Mexico :). The life style and cost did not make sense.  

Now  I can take my whole family to the movies for $8 AND I AM WINNING!

My Aunt and Uncle are 74.  None of their children or grand children can afford to buy anything even close to their neighborhood and they live in Ocean Beach, which was a lagging hippie community.

As a family man and investor, what's the point of living in an area like that?  

TheMexican's picture

What does that mean?  Be paranoid?

TBT or not TBT's picture

Do you still have rebar sticking up?   Whats up with that anyway?

Gen. Ripper's picture

It's the chinks artificially jacking up our prices with their yella notes

sinbad2's picture

Now that Trump has made them stop, prices will fall, and even the poorest will be able to afford a home.

TBT or not TBT's picture

They're poisoning our vital financial fluids. 

Yen Cross's picture

 I see a lot of people using their homes like ATM machines.  Lot's of new cars, but empty Restuarants.

  Homes aren't selling as fast, and speculators[private equity groups] are keeping the homes they wanted to flip.

 The ROI's are getting longer and longer... The fed has completely lost control.

HRH Feant2's picture

Bad bad idea. Second mortgages are death. Try selling your house with two mortgages, a first and a second, once prices drop. You can't. I learned the hard way. Never again.

mayhem_korner's picture

At least you learned.  Too many haven't, and the banks just want to continue creating credit and earning origination fees.

ZIRP and global QE have lulled the world into thinking there was a recovery.  The next crash will be so crushing that it's hard to know what things will look like on the other end. 

HRH Feant2's picture

I did learn, the hard way! I was younger and I had no clue. The economy was great, everything was great, everyone was doing it.

Who thinks the price of their house is going to go down? I certainly didn't!

Mtnrunnr's picture

Its a fallacy of thought that is going to cause The greatest gnashing of teeth when these boomers start selling their homes and millennials can not afford them. I'm renting until that day comes and taking dividens until demographic trends start to catch up. People can't fathom losing money ininvestments anymore and it will absolutely destroy the boomers.

HRH Feant2's picture

I was able to recover and bought another house three years ago. Refinanced original loan from 4.25% down to 2.89%, fixed. PITI is $1000 a month. I can pay that in my sleep. I can't stand renting so bought a modest place in 2014.

One change I did make was buying PMs. I agree. The boomers, too many, are not ready. I have enough silver so changed to buying gold. I buy one gold coin a month, now. That is my retirement plan. Will that be enough? I don't know. I try to spend as little as possible and save as much as possible.

Pinche Caballero's picture

Mrs./Ms. Feant2,

Thank you for the story of a successful recovery amidst all the doom and gloom.

In addition to your being back on track with the more recent purchase of a home and regular purchases of PMs, I hope you are able to consider paying down any debt to the point of being debt free.

I never knew how free I could be, until I managed to become debt free (Savings increased, purchases of tangible assets increased, and being able to give without expectations of return). I actively look for things to do with my money that I consider investments in my own future, especially as I draw nigh to my own retirement years.

My goal is having zero debt going into retirement, tangible assets, agriculture use land, and infrastructure to support how I wish to live. Being debt free is the precursor to accomplishing all of those things.

Blue Steel 309's picture

It is literally more expensive to rent in my area, even if you account for the price difference between now and 2009.

TBT or not TBT's picture

Thing is, the boomers will find a way to destroy us back.   They're destructive.   It's what they do.    The very bunch who stepped out beyond the warning of the founders on what happens to our republic when the voters figure out they can vote themselves goodies out of the public treasury. 

Seasmoke's picture

I've seen many a second mortgage just written off. They just go away. Never to be seen again. $150,000+ !!!!

sinbad2's picture

I had a 2nd mortgage on my first place, and made over 100% profit.

mayhem_korner's picture

People are drawing equity from their QE propped-up homes to fund college tuition. 

And Floyd Mayweather makes $200M for a fight. 

Nothing to see here.

Dragon HAwk's picture

My Question is what are they spending that money on,  Paying monthly bills, health care emergencies, vacations, it makes a lot of difference. some will be sinking it into their small business, some will be  paying for trade school,  but i bet most are paying regular bills or blowing it.

 

One Solution's picture

I used some of my equity to buy 3 acres and a mobile home on a dirt road in the country. If/when the shtf, that'll be our home sweet home, free and clear. The bank can have the property that they own.

If they manage to keep this fake economy propped up for another decade, we've got a nice quiet weekend/vacation getaway place with no cable, no internet, and limited cell coverage. Win/win.

Taras Bulba's picture

Post above has charts from Fed Reserve St Louis as to condition of several metrics for past several years:

Hit edit (may not be possible) on post to see charts or maybe tyler could assist.

Bear's picture

Show me da cash

Blue Steel 309's picture

What kind of a moron takes out a loan on his loan?

sirsmokum's picture

When debt dies so will fake house prices.

Silver Savior's picture

About time! Crazy realitor bastards.

Silver Savior's picture

I guess home equity is the final nail in the coffin. I have seen first hand how these loans can ruin families if the loans go bad. And of course the banks show no remorse. People are just numbers to them. 

The people are crazy for taking these kind of loans out and the banksters have no soul. Great! We must be near the end of the great cycle. This is where it ended last time and we are in far worse shape this time around. 

Fuckin' epic.