What Americans' optimism about finances means for lenders

Fears of tariffs and inflation abound these days, with many Americans concerned that rising prices will push up housing costs. But even as younger consumers worry about buying a home, many of them remain hopeful about their own finances, offering some encouraging news to mortgage lenders looking for unmet demand.

More than half or 55% of American consumers said they were optimistic about their household finances over the next 12 months, according to a new survey from TransUnion. This is a slight dip from the 58% three months ago, but it's double the 27% who reported pessimism about the coming year. 

"I think there's this difference between how people are perceiving the world around them, and how they're actually doing themselves," said Charles Wise, senior vice president and head of global research and consulting at TransUnion. He attributes some of this optimism to memories of previous downturns. Many Americans remember surviving events like the Great Recession, and that's giving them more confidence this time around.

Tariff fears, and opportunities

Inflation was top of mind for most respondents, with 81% citing it as one of their top 3 concerns. Many also pointed to interest rates, housing prices, and a possible recession as worries they had for the near future. As President Donald Trump's trade war continues to drag on, tariffs are also weighing on consumers' minds, with 67% of people indicating that they were worried tariffs might drive up prices. 

Despite these concerns, one-third of consumers said they plan to apply for new credit or refinance debt during the next year, with that number even higher for Gen Z and Millennials. This consumer interest in credit is a good sign for mortgage lenders, especially if rates fall. Since 2022, more than 8 million mortgages have originated at 6.5% or above, Wise said. That has created a lot of pent-up demand — and potential future opportunity for lenders.

"It is very likely that every one of those consumers would be jumping at the chance to refinance if rates were to dip below 6%," he said.

However, to date the most recent application numbers from the Mortgage Banker Association show that demand for refinancing has been limited.

That said, with more than 80 million mortgages and $21 trillion in equity across the United States, there is some interest in borrowing against it, Wise noted.

"More than the GDP of China is sitting in people's homes that they can't tap into other than through a home equity product," he said.

Among those looking to take on additional credit in the next year, 16% said they were looking to either add a new home equity line of credit or refinance an existing mortgage. This adds to signs that home equity products are in increasing demand.

Interest in adding a new HELOC in the next 12 months was up by 3 percentage points from the previous quarter's Consumer Pulse survey, while interest in refinancing remained unchanged.

A Young / Old Divide

Gen Z and Millennials reported greater confidence in their finances than older Americans, with younger folks saying they're less likely to cut back on spending and more likely to sign up for new subscriptions and services. In contrast, Gen Xers and Baby Boomers were more worried about the next year, possibly out of fear that their retirement savings won't keep up with inflation.

"When costs go up, there's not a lot of wiggle room if you're at or near retirement in terms of your income," Wise said.

Younger folks, on the other hand, may be buoyed by youthful idealism. Wise said many expect to find better jobs and pay soon.

"Most young people in their 20s, even early 30s, are like, 'Oh, sure, I'll be getting a raise next year and the year after that,'" he said.

Fighting Fraud

The report also raised new concerns about fraud, something that increasing numbers of HELOC lenders are facing and which may take on a new dimension with the rise of artificial intelligence. Forty-two percent of Americans said they were targeted by some kind of fraud scheme in the last three months, and 9% said they were victims of a scam. Phishing and smishing – text messages that aim to trick targets into clicking on a suspicious link or revealing personal info – were the most common types.

But despite the increasing ubiquity of phone, text, and email phishing schemes, many Americans still may not be taking sufficient precautions. Fewer than half of respondents have recently changed their password or checked their credit report in the last two months, and more than a quarter said they've done nothing at all.