In a growing economy, equity can still be threatened. Home equity does not deserve the same confidence as FDIC insured CDs. Neighborhoods can change, hurting home values. Residential neighborhoods become commercial, family neighborhoods get drug infested, single family homes are cut up and become multifamily units eliminating all the parking and reducing values. Soon there will be a massive exodus from family neighborhoods as baby boomers retire and move to retirement communities. Interest rate changes also threaten home equity. Higher mortgage rates make homes less affordable, which hurts home values. When homeowners hear or read about the Federal Reserve, most wonder how this will affect the value of their home. Higher real estate taxes also hurt home values.
Home equity is often disappointing as a savings vehicle. It lacks the utility of other savings systems. Unmanageability is a common occurrence. Just when you need your savings the most, home equity is likely to fail you. Laid-off workers often find they cannot tap their home equity with a second mortgage or refinance because they have no income to support higher mortgage payments. Retirees are often disappointed to find that the sale of their home after Realtor commissions and expenses leaves a much smaller nest egg than hoped for. Reverse mortgages often produce insufficient income for retiree living expenses. Savers relying on home equity must be prepared for sadness and grieving if their retirement plans are unreachable.