Untapped Home Equity Rises, Doubling from 2011
With the housing market warming with the growing economy, homeowners are also seeing the equity in their properties rise as well. Such equity could be utilized in a number of ways, including home equity loans and home equity lines of credit (often known as HELOCs) that can be used to fund improvement projects, pay down other debts, and more. However, as Bloomberg reports, it seems many homeowners are leaving their equity untapped for the time being.
According to Black Knight Inc., Americans are currently holding $5.8 trillion of tappable home equity. That’s more than double the amount they had in 2011 and marks a record high. As a result Bloomberg reports that lenders increased their direct-mailer spending for HELOCs and other home equity product by 30% in Q1 2018 compared to a year prior.
A likely reason why many homeowners are passing on home equity loan options at the moment has a lot to do with the memories of 2008. During that housing market crash, some homes lost 35% of their value, leaving owners who had tapped their equity underwater. Westwood Capital managing partner Dan Alpert explained the situation, simply stating, “There’s a long-memory issue. People got caught with home equity lines last time.” Similarly Catherine Kirchner of U.S. Bancorp noted that today’s homeowners are thinking twice before tapping their equity “Whereas pre-2008, people were opening a home equity line of credit to go on vacation or buy a car.”
Another potential reason homeowners aren’t flocking to tap their equity is increasing interest rates. This is especially an issue for adjustable rate products that are poised to grow more expensive over time. It should also be noted that the GOP-backed tax law passed last year makes it so home equity loan interest is only deductible if the funds were used for home improvement projects.
Incidentally, compared to 2009, home equity lending has climbed 98%. On the other hand tappable equity has risen 120% during that same time period. More recently new home equity loans and lines of credit fell from $47.47 billion in Q4 2017 to $43.58 billion in the first quarter of this year. For what it’s worth, 84% of that figure is made up of HELOCs with the home equity loans accounting for the other 16%.
Ultimately, with the housing crisis less than a decade in the past, it makes sense that homeowners might be a bit skittish about tapping their equity these days. Still it’s clear that lenders are attempting to change that trend and investing in finding customers for their home equity products. As Citizens Financial Group consumer deposits and lending president Brendan Coughlin put it, “It’s time to see home equity lending come back.” We’ll have to see if Coughlin’s assertion come trues or if it’s just wishful thinking.