Jarred Kessler is the CEO of EasyKnock.
As it relates to the current market, making the connection between the housing dilemma and larger contributing factors is sometimes not as easy as one might hope. For six years I’ve researched and discussed the prevalence and growth of the problem in the housing market, or as I call it, the stalled stock crisis.
In 2008, subprime loans led to huge fines, increased supervision and changes in lender qualifications. In my view, the government was right in its choice to restrict subprime mortgages, as some lenders took advantage of customers who were apparently unable to pay their loans. Partly because of this issue, the Great Recession was born, and the unintended consequence was the lockdown of massive stocks.
For example, if someone has a low FICO score or if their income stream is unconventional or complicated, that person will most likely be barred from getting a mortgage refinancing, HELOC, or HECM loan. While some still qualify, these strict restrictions leave few options for the rest.
This leads many of those who invest in real estate to feel stuck. As the housing market jumps and the value of a home rises, selling is often the only way to access that wealth. All things considered, potential housing investors facing complications, especially those with a FICO score below 680are often not even eligible for financing.
Equity in houses and real estate is at a record level, not only because the cost of housing continues to rise, but also because equity is tied up without the owner having access to it. This leads real estate investors to turn to options such as high-interest credit cards in an environment of rising interest rates. The hardest part of this for me personally is witnessing the frustration and defeat faced by those in this predicament. They have worked hard to build their wealth and their real estate has increased in value, but they have debt with little flexibility.
Anyone who argues that real estate is not an ATM may not understand the concept that investments are fungible, which leads me to this equation: Isn’t your stock portfolio an ATM? What happens if it goes up by 50% and you can’t sell while increasing your debt load and experiencing higher rates?
There are several new platforms that serve as additional options and help with affordability, including home equity agreements (HEAs), sale-leaseback programs, and rent-to-own models. Choosing the best option depends on the needs of the individual investor. These programs are beneficial to the economy because they allow people to get a better financial place where they can spend more freely and enjoy their lives.
For commercial real estate, in particular, investors’ options include commercial equity loans, CELOCs, and sale-leasebacks. Commercial equity loans generally offer a one-time, lump-sum payment and a wide variety of term options, which may be the best choice for some, while a CELOC may be a better option for others because it offers a line of credit that can be used at any time during a specific period of time. , predetermined time span. When investors need access to equity to make repairs, or multi-family owners need extra cash to pay bills, these are the typical solutions they turn to. However, investors may still be held back by strict rules from accessing these options.
While the stalled equity crisis is complicated, the solution is simple: Find a way to help investors and homeowners enjoy their equity, preserve their properties, and be educated about their options. The US housing market is the largest asset class in the world and deserves better and more solutions.
Food for thought: If Americans could tap into one to three trillion dollars in equity capital, their lives would improve dramatically and the economy would prosper. Those who oppose this logic argue that due to external factors, people should not be able to access their own wealth. My answer is: who are you to tell people what they can do with their own hard-earned wealth?