Saluda Grade Remains Bullish on Home Equity Despite Macro Uncertainty
While many investors are pulling back amid rising interest rate concerns and growing signals of consumer financial stress, alternative investment firm Saluda Grade is doubling down on its conviction in home equity assets. According to Blake Eger, the firm's head of private credit and senior portfolio manager, the structural fundamentals underpinning U.S. home equity remain too strong to ignore — regardless of short-term macroeconomic noise.
In a recent interview with HousingWire, Eger outlined the key reasons why Saluda Grade continues to view residential home equity as one of the most resilient and opportunity-rich asset classes available to private credit investors today. From rate lock-in effects to a chronic housing supply shortage, the firm believes the conditions that make home equity attractive are not going away anytime soon.
The Rate Lock-In Effect: Why Homeowners Are Staying Put
One of the central pillars of Saluda Grade's thesis is what industry analysts often call the "rate lock-in effect." With the average mortgage rate held by today's homeowners sitting at approximately 4.5%, and current market rates hovering near 6.5%, the incentive to refinance or sell is practically nonexistent for the vast majority of borrowers.
"What we're focused on is 75% of homeowners today with a mortgage have a rate that is still out of the money — and that's material," Eger explained. "In the near term, I don't see any material changes in rates that would impact borrower behavior in some of these asset classes."
This dynamic has a powerful downstream effect. Because homeowners are locked into historically low mortgage rates, they are far more likely to tap into their accumulated home equity to fund renovations, consolidate debt, or meet other financial needs — rather than selling their homes or refinancing their primary mortgages. This behavior creates consistent, high-quality deal flow for lenders and investors focused on home equity products such as home equity lines of credit (HELOCs) and home equity loans.
$35 Trillion in Residential Home Equity: A Giant Asset Class
Beyond the rate environment, Eger points to the sheer scale of accumulated home equity in the United States as a compelling reason to invest in this space. According to Saluda Grade's estimates, there is currently close to $35 trillion in home equity sitting in single-family residential housing across the country.
"There's a tremendous amount of equity accumulated in the system today, in particular on the residential side. It's almost $35 trillion of home equity in single-family residential housing in the U.S. That's a giant asset class. We want to finance that equity, the homeowner who has that equity," Eger said.
For context, this massive pool of wealth represents decades of home price appreciation, accelerated in recent years by pandemic-era demand surges and constrained housing supply. For private credit firms like Saluda Grade, this equity represents both collateral and opportunity — a vast reservoir of borrowing capacity that has barely been tapped relative to its total size.
Housing Supply Shortage and Aging Stock Add Further Tailwinds
The investment case for home equity doesn't rest on rates and equity accumulation alone. Eger also highlights several structural factors in the U.S. housing market that are likely to sustain demand for home equity financing for years to come.
- Supply shortage: The United States currently faces a deficit of approximately 3.5 million homes, a gap that continues to widen as new construction fails to keep pace with household formation rates.
- Increasing household formations: Demographic trends, including millennials entering peak home-buying age, are driving continued growth in the number of new households being formed each year.
- Aging housing stock: Much of America's residential housing inventory is aging rapidly, creating significant and ongoing demand for home improvement financing — a primary use case for home equity products.
Together, these factors reinforce a market environment where homeowners are both asset-rich and increasingly motivated to invest in their existing properties rather than trading up to a new home. That creates a durable and expanding market for the kinds of home equity lending products that Saluda Grade finances.
Portfolio Performance: No Stress Signals in Sight
With a total portfolio of approximately $4 billion — the majority of which is comprised of residential assets — Saluda Grade has a meaningful window into the real-world performance of home equity borrowers. And according to Eger, the consumer stress that some economists and market observers have flagged at a macro level has not materialized in any meaningful way within the firm's book of business.
This is a significant data point for investors weighing the risk-reward profile of home equity assets. While credit card delinquencies and auto loan defaults have ticked upward in some segments of the consumer market, secured home equity products benefit from the cushion of real property collateral — and from borrowers who, by definition, have significant equity stakes to protect.
Why Home Equity Stands Out in the Private Credit Landscape
The private credit market has grown dramatically over the past decade, with investors searching for yield in an increasingly competitive environment. Home equity assets offer a distinctive combination of characteristics that make them appealing within this broader landscape.
First, they are secured by real property, providing a meaningful layer of downside protection compared to unsecured consumer credit. Second, the rate lock-in dynamic described by Eger creates a captive borrower base that is unlikely to prepay, offering more predictable cash flows than many other asset types. Third, the sheer scale of the addressable market — nearly $35 trillion — means there is ample room for institutional capital to participate without crowding out returns.
The Bottom Line: Structural Strength Over Macro Noise
Saluda Grade's continued commitment to home equity assets reflects a disciplined focus on structural fundamentals over short-term macro concerns. With 75% of mortgaged homeowners locked into below-market rates, a $35 trillion pool of residential equity to finance, a persistent national housing shortage, and a portfolio showing no signs of stress, the firm's thesis appears well-grounded.
For investors and market participants looking to navigate an uncertain macroeconomic environment, the home equity space may offer exactly the kind of durable, collateral-backed resilience that is increasingly hard to find elsewhere in the credit markets. Saluda Grade, for one, is betting that story has plenty of runway left.