Homes as ATMs -- Again

A major part of the 2007-2009 financial crisis was too much precarious debt in the housing market.

The July 2007 Elliott Wave Theorist warned:

Many people have been rushing to borrow the last pennies possible on their homes. They have been taking out home equity loans so they can buy stocks and TVs and cars and whatever else their hearts desire at the moment. This widespread practice is brewing a terrible disaster. Taking out a home equity loan is nothing but turning ownership of your home over to your bank in exchange for whatever other items you would like to own or consume. It's a reckless course, and it stems from the extreme confidence that accompanies a major top in social mood.

Just three months after those comments published, the Dow Industrials topped.

Now, people are using their homes as ATMs again.

Here's an excerpt from a Dec. 29 Wall Street Journal article:

Many U.S. homeowners who need cash are taking it out of their properties. ...

Over the past two years, a big chunk of homeowners took on higher interest rates when they refinanced to tap their home equity. These cash-out refinancings, as they are known, free up money homeowners can use to pay down credit-card debt, renovate or invest in a new property.

Nearly 60% of cash-out refinancings in 2018 came with higher interest rates, the biggest share since before the financial crisis, according to Black Knight Inc., a mortgage-data and technology firm. This year, that number fell to around 44% of cash-out deals, but it remains at more than three times its average between 2009 and 2017.

This corner of the mortgage market illuminates the crosscurrents in the U.S. economy: After roughly a decade of rising home prices, homeowners are flush with record amounts of home equity they can tap. But many Americans remain short on cash and are increasingly relying on debt to fund their lives. ...

Cash-out refis made up a significant share of refinancings in the third quarter, helping fuel a rebound in the mortgage market after a dismal 2018. Led by refis, lenders originated $700 billion in mortgages in the third quarter, the most since before the financial crisis, according to industry research group Inside Mortgage Finance.

The average 30-year fixed mortgage rate has been under 4% for much of the year. That is low by historical standards, but higher than periods in 2012, 2013, 2015 and 2016 when borrowers last flooded the market. Black Knight found that 39% of the people who did cash-out refis in the third quarter had obtained their mortgages during those four low-rate years. ...

The use of cash-out refinancings worries some economists because it echoes the precrisis era, when homeowners used their homes like ATMs.

Elliott Wave International's analysts say another "terrible disaster" is brewing. Get their insights.

Read the free report, "What You Need to Know Now About Protecting Yourself from Deflation."