Homeowners are getting richer, thanks to rising home values. The amount of equity that homeowners can tap into is now at the highest level on record, according to Black Knight Financial Services, a mortgage and finance industry solution provider.
The amount a borrower can take out of a home—while still leaving 20 percent in it—increased by a collective $735 billion during 2017. That is the largest annual increase by dollar value on record, according to Black Knight. The collective amount of equity homeowners can tap in now stands at $5.4 trillion, 10 percent more than the pre-recession peak in 2005.
“There’s no question that a majority of homeowners have amassed considerable equity gains since the downturn,” says Lawrence Yun, chief economist of the National Association of REALTORS®. “Home prices have grown a cumulative 48 percent since 2011 and are up 5.9 percent through the first two months of this year.”
Homeowners are being more conservative, and lenders are much stricter when it comes to tapping into home equity. Homeowners took out $262 billion in cash-out refinances or home equity lines of credit last year, which is less than 1.25 percent of all available equity and is at a four-year low.
“While rising rates tend to dampen utilization of equity in general, the market is poised for a strong shift toward HELOCs, as they allow borrowers to take advantage of growing equity while holding on to historically low first-lien interest rates,” says Ben Graboske, executive vice president of Black Knight Data & Analytics. “Over half of all tap-able equity—approximately $2.8 trillion—is held by borrowers with credit scores of 760 or higher and first-lien interest rates below today’s prevailing rate, which creates a large pocket of low-risk HELOC candidates.”
The amount of homeowner equity varies depending on location. Thirty-nine percent of the nation’s total tap-able equity is in California alone. Seattle and Las Vegas have also seen large increases in home equity, Black Knight notes.
Source: “Homeowners Are Sitting on $5.4 Trillion in Ready Cash, the Most Ever,” CNBC (April 2, 2018), Daily Real Estate News (4/3/2018)