Saluda Grade Remains Bullish on Home Equity Despite Macro Uncertainty
As economic uncertainty continues to ripple through financial markets in 2025, many investors are pulling back from consumer-facing asset classes. But alternative investment firm Saluda Grade is doubling down on home equity — and its reasoning is grounded in some compelling structural data that the broader market may be overlooking.
In a recent interview with HousingWire, Blake Eger, Saluda Grade's head of private credit and senior portfolio manager, laid out a clear and data-driven case for why home equity assets remain one of the most attractive opportunities in residential finance today — regardless of what the broader macroeconomic backdrop might suggest.
The Rate Lock-In Effect Is Driving Home Equity Demand
One of the most powerful forces currently shaping the U.S. housing market is what economists and analysts have come to call the "rate lock-in effect." The core idea is simple but its implications are enormous: a large share of American homeowners locked in historically low mortgage rates during the pandemic era, and they have little to no incentive to sell their homes or refinance at today's significantly higher rates.
According to Eger, approximately 75% of homeowners with a mortgage today hold a rate that is still out of the money relative to current market rates. The average mortgage rate held by today's homeowner sits at roughly 4.5%, while current 30-year fixed mortgage rates hover near 6.5%. That gap — more than 200 basis points — effectively traps millions of homeowners in place.
"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 said. "In the near term, I don't see any material changes in rates that would impact borrower behavior in some of these asset classes."
Rather than selling or refinancing, these homeowners are instead turning to their accumulated home equity as a financial tool — whether through home equity lines of credit (HELOCs), home equity loans, or home equity investment products. This behavioral shift creates a sustained, structural source of demand for the very asset class that Saluda Grade specializes in financing.
$35 Trillion in Home Equity: A Giant Asset Class
Beyond rate dynamics, the sheer scale of accumulated home equity in the United States makes it a market that serious investors simply cannot ignore. Home values surged dramatically during the pandemic years, and despite some cooling in certain markets, that wealth has largely held firm across much of the country.
"There's a tremendous amount of equity accumulated in the system today, in particular on the residential side," Eger noted. "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."
To put that figure in perspective, $35 trillion dwarfs many other major asset classes and represents one of the largest concentrations of household wealth in the world. For alternative investment firms like Saluda Grade, which manages a total portfolio of approximately $4 billion — the majority of which consists of residential assets — this pool of equity represents an enormous and largely untapped opportunity.
Structural Housing Market Forces Add Further Support
The investment case for home equity doesn't rest on rate dynamics alone. Several longer-term structural forces in the U.S. housing market are reinforcing the resilience of residential assets and, by extension, the security of home equity as a lending category.
- Persistent housing supply shortage: The U.S. currently faces a deficit of approximately 3.5 million homes, a gap that has been building for years due to chronic underbuilding following the 2008 financial crisis. This shortage provides a durable floor beneath home values in most markets.
- Growing household formations: Demographic trends continue to push household formation numbers higher, meaning demand for housing — and consequently for home equity products — is not going away anytime soon.
- Aging housing stock: The existing inventory of homes across the United States is aging rapidly, driving homeowners to invest in renovations and improvements. Many of these projects are financed through home equity products, further expanding the market Saluda Grade serves.
These three forces — undersupply, rising demand, and an aging stock — collectively reinforce the fundamental value of residential real estate and make home equity an attractive and defensible collateral base for investors.
Consumer Stress Signals Not Yet Visible in the Portfolio
Critics of the home equity investment thesis often point to rising signals of consumer financial stress — including elevated credit card delinquencies, softening labor market indicators, and persistent inflation — as reasons for caution. It is a fair concern in a market where affordability challenges remain acute for many Americans.
However, Eger pushed back on the idea that these macro-level signals are translating into material deterioration within Saluda Grade's own book of business. The firm has not observed significant signs of stress within its portfolio, a point that speaks to the quality and structure of the assets it chooses to finance.
This distinction matters. Not all consumer credit is created equal, and home equity borrowers — who typically have meaningful equity cushions and relatively stable financial profiles — behave quite differently from, say, unsecured credit card holders during periods of economic pressure. The collateral backing of real property provides a layer of protection that other consumer credit segments simply lack.
Why Home Equity Stands Out in the Current Alternative Investment Landscape
For institutional investors and capital allocators evaluating where to deploy capital in the current environment, home equity presents a compelling risk-adjusted opportunity. The combination of strong collateral coverage, structural demand tailwinds, a historically unprecedented supply constraint in the underlying housing market, and the behavioral persistence of rate-locked homeowners creates conditions that are difficult to replicate in most other asset classes.
Saluda Grade's conviction in this space reflects a broader recognition among sophisticated alternative investors that residential credit — particularly home equity — occupies a unique position at the intersection of consumer finance and real estate. It benefits from the collateral security of property while also tapping into the financial needs of a massive and growing population of equity-rich homeowners.
The Bottom Line for Home Equity Investors
The macro environment in 2025 is undeniably complex. Interest rates remain elevated relative to recent history, consumer balance sheets are under pressure in certain segments, and uncertainty around the economic outlook persists. These are not trivial risks to dismiss.
But Saluda Grade's perspective offers an important counterpoint: the structural conditions that make home equity a compelling asset class are deeply embedded and unlikely to shift in the near term. With $35 trillion in accumulated residential equity, a 3.5-million-home supply deficit, and three-quarters of mortgaged homeowners locked into rates well below today's market, the fundamental drivers of home equity demand remain firmly intact.
For investors willing to look past short-term macro noise and focus on the underlying structural dynamics of the U.S. housing market, home equity assets continue to present one of the more attractive opportunities available in private credit today — and firms like Saluda Grade are positioning themselves to capture it.