As home prices rise and wages remain stagnant, a growing number of Americans are finding themselves house-rich but cash-poor. And with interest rates trending upward, American homeowners are increasingly likely to stay put.
This all spells opportunity for Hometap, a homeownership investment startup that launched in Massachusetts this summer before quickly doubling its staff and expanding to California.
Hometap invests in homes alongside homeowners, offering them access to up to 20% of their equity cash for a 10-year term in exchange for the chance to share in their home’s appreciation. If the home’s value declines, Hometap shares in the loss.
In practice, the product gives users access to their equity without incurring more debt.
Hometap CEO Jeffrey Glass said a multi-state expansion is on the horizon, as the company’s initial roll-out confirmed the market’s appetite for this type of product.
“Demand has meaningfully outstripped expectations and is very confirmatory of all the research that we’ve done,” he said. “It has really been outstanding – far greater than what we would have even expected. The pipeline is big and strong, and we’ve exceeded our 2018 goals, which were pretty aggressive.”
Glass said the company conducted a considerable amount of consumer research before its launch, and the findings highlight both a need for equity access and a fear of mounting debt.
Among its research was a survey of 650 homeowners across 47 states with an average age of 41, revealing that 91% would prefer financing options that allow them to tap into their equity without taking on debt. Plus, 63% cited debt as their biggest daily concern.
The respondents had an average of $122,000 in home equity, but one-third said did they not think they could access it easily if they needed to.
If they could access their equity, the three top uses they cited were paying off credit cards (40%), making investments (37%) and renovating their home (34%). Other uses that scored high: funding retirement, purchasing a second home and paying for education.
“The business side really confirms what we’re seeing in the research, which shows that this is a really, really important issue for American homeowners,” Glass said.
“It’s an enormous opportunity for homeowners to be able to tap into some of that equity that they’ve been able to build up through time and home price appreciation and through dutifully paying down their mortgage, and then be able to take advantage of that and use that equity for other items of importance in their lives,” he continued.
Glass said Hometap’s clients vary in age from 35 to 55, and that many have turned to the product to eliminate or reduce their debt.
“A lot of folks are using this to improve their personal balance sheet and reduce other forms of debt,” he said. “We’ve seen a major use-case around taking a little bit of this equity capital that you’ve earned and built up, and leveraging that to pay down some debt and to make your life on a go-forward basis a little less stressful.”
Glass said the company is now able to help condo owners, and that its goals for the coming year include national expansion and finding ways to connect with different types of homeowners who could benefit from debt-free equity access.
“We’re focused on trying to help people take advantage of what they’ve earned what they have,” he said. “This equity is theirs – it shouldn’t be illiquid.”