What is the single biggest asset that millions of middle-class Americans own? It’s growing at an unprecedented rate right now, creating wealth and buying power for a significant portion of the population. It’s allowing people to free up funds for automobiles and other major purchases.
The answer is home equity.
Homeowners Carry an Average $153K in Tappable Equity
Black Knight, a lender analytics firm, estimates that homeowners currently have an average of $153,000 in tappable equity. In this case, tappable equity refers to a homeowner’s total amount of equity built up, minus 20% of a home’s value. The Black Knight estimate accounts for the 20% buffer, making this figure even more impressive.
The fact that home equity is growing shouldn’t come as a huge shock. After all, home prices have risen 20% year-over-year from July 2020-2021, according to the S&P CoreLogic Case-Shiller National Home Price Index. Rising sales prices, along with rock-bottom interest rates and federal stimulus programs, have set the housing market ablaze.
For homeowners who choose not to sell, they can now access a significant source of funds. Options like cash-out refinancing and home equity lines of credit allow homeowners to convert equity to cash for purchases like automobiles.
Even more, Bloomberg reports that one-third of U.S. homeowners are now equity rich, meaning their property is worth twice as much as its underlying mortgage. This may explain why auto sales have kept up the pace even as the average transaction price (ATP) climbed to a record $45,000 in September 2021, according to Kelley Blue Book.
U.S. Consumers Have Stayed Resilient
Households have largely shrugged off supply constraints, the Delta variant, and the end of enhanced unemployment benefits – at least as far as their spending is concerned. September retail sales rose a seasonally adjusted 0.7% from the previous month, according to the Commerce Department.
For automotive specifically, buyers are moving away from lower-priced sedans and entry-level cars, instead preferring more expensive pickups, SUVs, and luxury vehicles. It seems that automakers are following the trend, too. Incentive spending fell to a record low of 5.2% ATP in September across all automakers. Subaru and Toyota were among the lowest, while Alfa Romeo and Infiniti had incentive levels above 10% of ATP.
Marketing to High-Equity Consumers
With growing home equity, we can expect more homeowners to shift some of this wealth into major purchases like new, and possibly more expensive, vehicles. But homeowners aren’t the only ones in an equity position.
Some owners of more popular models have seen their vehicle’s equity increase, too. This puts some in a position to pay off their loans and upgrade to a newer vehicle. Dealers can reach customers in equity positions by using customer database mining and targeting via direct mail. In addition, direct mail is one of the few marketing mediums that can target credit and homeowner status, allowing dealers to dial in on consumers with extra cash to spend.
To get started with equity marketing, contact Strong Automotive Merchandising for a full list of targeting options so you can strike while the iron is hot.
John Paul Strong
John Paul Strong combines his two decades of automotive marketing experience with a team of more than 140 professionals as owner and CEO of Strong Automotive Merchandising.