Wall Street Firms See ‘the Next Huge Opportunity’ to Bet on Housing

  • Many Americans have seen their home equity soar, thanks to rising home values during the pandemic.
  • A number of companies are looking to help those owners tap into their equity without using debt.
  • These “shared-equity agreements” could be the next frontier for firms looking to bet on housing.

American homeowners have even more wealth tied up in their home equity than they did earlier in the pandemic, thanks to soaring home values.

Big investors smell an opportunity. 

Roughly 42% of mortgaged residential properties are considered “equity-rich,” meaning the homes are worth at least twice as much as the amount owed on their mortgages, according to a fourth-quarter report from ATTOM Data Solutions. That represents a sharp increase from 30.2% a year ago, the result of a historic run for the US housing market.

The problem for many homeowners is all that money is effectively trapped. The primary methods for unlocking that wealth typically involve selling the home, taking cash out through refinancing, or taking on loans tied to the equity. 

A growing number of companies are providing an alternative through what’s called shared-equity agreements. They’re offering homeowners lump sums of cash in exchange for a portion of their equity, pitching it as a win-win that allows owners to tap into their equity without assuming debt.

Companies like EquiFi, Unison, Hometap, and Point are targeting a huge market — the total amount of home equity owned by American households is more than $25 trillion, according to data from the Federal Reserve. And they’re backed by some of the biggest names in institutional capital, including Bain Capital, Citigroup, Redwood Trust, and Prudential Financial. 

“There’s a lot of smart money that understands both private equity and real estate quite well that’s trying to figure out how to partner in this space,” George Kenny, a managing director at Tangent Capital Partners who is an advisor to EquiFi, said.

Wall Street has already found ways to capitalize on demand for single-family homes during the pandemic, namely by spending billions of dollars on houses and turning them into rentals. At an industry conference in November, large investors said they saw plenty of runway for this strategy.

David Shapiro, the founder and CEO of EquiFi, said the capital his company had raised thus far primarily came from investors who are also active in the single-family rental space. He said his firm’s model had “much better consumer optics” because it offers investors a chance to coinvest alongside homeowners.

“Our pitch to them is, you’ve got a homeowner, they already own the home. You’re not disrupting the homeownership,” Shapiro said. “You’re getting access to home-price appreciation in a very stable product that has a lot of protection. So we think it’s a great alternative, or an adjunct, to what folks in SFR are doing.”

Kenny said he believed the home-equity product offered “a much bigger market than what you’re going to see in” single-family rentals.

“I think that it’s going to be the next huge opportunity within residential real estate for institutional capital,” Kenny told Insider. “And that’s why you’re seeing all this venture and private-equity money invest in the platforms to get access to the product.”

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