Home equity lending is on its way up, according to a recently released CoreLogic white paper. The first three quarters of 2015 showed lenders originating nearly 976,000 new home equity lines of credit (HELOCs) with combined limits in excess of $115.8 billion. These figures were the highest for the January-through-September period since 2008, with year-over-year gains marking 21 and 31 percent.
Despite this increase, the HELOC market is still below the 2005 peak when originations neared $364 billion. However, the bolstering economy and improving housing market, combined with rising loan performance, will likely increase the popularity of home equity products.
House price appreciation and job growth are working together to improve consumer confidence and, as a result, home equity demand. Strong home price appreciation across the country has reduced negative equity at the bottom of the market and created more than $6 trillion of equity since the trough of Q1 2009, according to the Federal Reserve. Approximately 30 million homeowners own their homes free and clear, and these consumers are potential candidates for HELOCs and cash-out refinances.
Of course, job growth also strongly impacts home appreciation; Over the past six years, more than 13.5 million new jobs have been added, halving 2009’s sky high 10 percent unemployment rate, which dropped to 5 percent at the end of 2015.
Low mortgage rates may impact the likelihood of HELOCs and cash-outs. In October 2015, nearly three quarters of all homeowners with a mortgage have first mortgage rates below 5.0 percent, with the average interest rate on outstanding mortgage debt shrinking to 3.8 percent. These low rates may change homeowner behavior, as they grapple with other large financial expenses, like college tuition and debt consolidation. Will they give up their low rates to refinance, or will they tap into their equity? As their needs and families grow, will they buy larger houses or remodel using refinancing?
The remodel market continues to surge forward, hinting at the latter option, with the National Association of Home Builders Remodeling Market Index (RMI) posting its 10th consecutive quarter in which the index stayed above the key break-even mark of 50–the point at which remodelers feel confident about the market.
For more information about home equity lending, view the full Corelogic report at www.corelogic.com.