Is home equity, now at $11.5 trillion, at its peak?
Home equity hit an all-time high of $11.5 trillion in the second quarter, but it could be nearing its peak as major stock-rich markets on the West Coast begin to show signs of decline.
Workable equity, the amount homeowners can access while maintaining at least 20% of their home’s equity, has risen again for the 10th time in a row, according to Black Knight. It was up $500 billion from the previous quarter and $2.3 trillion from the same period in 2021. Black Knight calculates homeowner equity levels by leveraging mortgage performance data and its housing price index.
As homeowners have seen their home equity rise, the pace of growth has slowed, especially on the West Coast.
“Equity growth, however, slowed as house price appreciation began to moderate, with some of the hottest markets even posting declines in equities amid rising interest rates and financial problems. ‘affordability,” said Andy Walden, vice president of research and corporate strategy at Black Knight.
A total of 11 of the country’s 50 most equity-rich markets recorded declines in the second quarter, according to Black Knight. All of the markets were on the West Coast, including eight in California. The Golden State saw a $155 billion drop in usable equity, posting $3.5 trillion from April to June.
San Jose, Calif., saw the largest decline in usable equity, which fell 12% to $55 billion. Workable equity in Seattle, Washington fell $38 billion (-10%), San Francisco, California, fell $42 billion (-5%) and Los Angeles, California, fell $36 billion (- 3%).
Prioritizing home equity solutions in a rising rate environment
The housing market in 2022 has been highlighted by spikes in interest rates and falling refi, and lenders are working hard to adjust to new borrower trends. HousingWire recently spoke with Barry Coffin about how lenders can capitalize on these trends by improving their home equity solutions.
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At the end of the second quarter, the average U.S. homeowner had $216,900 of workable equity, up 5% from $9,700 from the prior quarter and a 25% increase from $43,400 from the same period in 2021.
“With 73% of equity held by borrowers who have locked in prime interest rates below 4%, borrowers may be reluctant to access their equity through refinancing,” Walden said. “As a result, we expect more homeowners to turn to second-tier home equity products.”
While home equity lending has been dominated by custodian banks for years, non-bank lenders are targeting space as they seek volume in a bear market.
rocket mortgage launched a home equity loan this week, which will allow homeowners to access up to $350,000 of equity in their home while maintaining at least 10% equity.
Last month, Guaranteed rate introduced a Digital Home Equity Line of Credit (HELOC), a revolving line of credit that allows borrowers to draw for two to five years. loanDeposit and New residential investment company. join the list of non-bank lenders considering launching HELOC products.