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Home Equity Boom Looming

 

Home Equity Boom Looming

Kuma Capital Investments – September 10th, 2025

Re: Housing Cycles, Baby Boomers, and the Refinance Opportunity

Setting the Stage

Exactly four years ago, mortgage rates spiked to their highest levels in two decades, freezing the U.S. housing market. Homeowners locked into 3% mortgages stayed put. Transaction volumes plunged. Refinances—the profit engine of mortgage lenders—collapsed.

Today, we believe the pendulum is poised to swing back. Rates have eased from their highs near 8% to the mid-6% range. History shows that even a modest decline of 30–50 basis points can double the pool of refinance-eligible borrowers. In August alone, cash-out refinances rose 31% year-over-year, while overall refi locks increased 27%. The cycle, long muted, is beginning to stir.

The Demographics Behind the Market

The generational context is equally important. Baby boomers now represent 42% of home buyers and 53% of sellers, with many buying outright in cash thanks to decades of equity appreciation. Americans 55 and older own more than 54% of U.S. homes, up from 44% in 2008. Yet mobility among this group has slowed dramatically. Research suggests that if older households had maintained 2019 mobility rates, the market would have seen nearly 500,000 additional bedrooms released in 2023.

This inertia has helped create the current standoff—equity-rich households sitting in place, while younger buyers face affordability challenges. It is not permanent. As rates ease, we expect a significant wave of boomer downsizing and equity-driven transactions.

Untapped Equity, Locked-In Debt

Meanwhile, household balance sheets are stronger than the current lending market suggests. U.S. homeowners hold over $34 trillion in equity—yet much of it sits idle. ICE data shows only 0.42% of tappable equity was withdrawn in Q3 2024, less than half historical norms, leaving nearly $500 billion in equity unutilized over the last 10 quarters.

At the same time, millions of homeowners are stuck with mortgages at 6–8%, paying hundreds (if not thousands) more per month than those fortunate enough to have locked in 2020–21 rates. For them, refinancing is not just an option but a necessity once rates decline further.

Mortgage Lenders: From Despair to Asymmetry

The market has punished mortgage lenders for four years of stagnation. Valuations today reflect deep pessimism:

  • UWMC trades at ~0.6× book value, well below long-term averages.

  • Dividend yield approaches 7%, paying investors while they wait.

  • Earnings power remains depressed, but in Q2 2025 UWMC still earned $314M, pointing to normalized capacity of $600M–$1.2B annually.

Our Buffett-style analysis suggests a wide range of intrinsic outcomes:

  • Worst case: $2–6/share, with dividends cushioning downside.

  • Base case: $6–10/share, nearly doubling current price.

  • Refi boom: $15–20/share, if volumes normalize and cash-out lending surges.

That’s the definition of asymmetry: limited downside if current trends persist, but extraordinary upside if the housing cycle turns.

KCI’s View

At Kuma Capital, we don’t see a bubble in mortgage lenders—far from it. Unlike tech manias, there is no euphoria here, no sense of “no price too high.” Instead, there is neglect, skepticism, and discount pricing.

We believe this is precisely the environment where patient capital earns outsized rewards. Baby boomers will eventually move. Locked-in homeowners will eventually refinance. Trillions in equity will eventually be tapped. And when that happens, mortgage lenders—especially scaled players with technology and broker reach like UWMC—are positioned to capture the windfall.

As always, the price you pay matters. Today’s prices reflect despair more than reality. In our view, this is not a market to fear, but one to embrace as cyclical opportunity.

Onward,
Kuma Capital Investments

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