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October 11, 2024 – Homeowners haven’t drained cash out of their houses THIS FAST since 2008

Homeowners in California were the most active in taking out home-equity loans

Homeowners across the U.S. may be locked in, but they can still cash out. 

With home values soaring over the last few years, homeowners who have built up equity are turning to home-equity loans to cash in on their gains.

In the first half of this year, home-equity lending has soared to the highest level since 2008, real-estate data-analytics firm CoreLogic said in a report released Wednesday.

Over that period, lenders originated more than 333,000 new home-equity loans totaling about $23.6 billion, the company said. 

Home-equity loan versus HELOC

Home-equity loans are different from home-equity lines of credit, or HELOCs.

When a homeowner takes out a home-equity loan, they get a lump sum up front, have a rate that is fixed and make payments on a schedule until the loan is paid off.

A HELOC, on the other hand, is a type of revolving credit that allows a homeowner to borrow against the equity in their home. Borrowers can spend up to their credit limit during the draw period, which can be up to 10 years, after which they enter a repayment period, according to the Consumer Financial Protection Bureau. Rates on HELOCs are variable and are tied to Federal Reserve policy rates.

The average interest rate on a home-equity loan was 8.36% as of Oct. 9, according to Bankrate, while the average HELOC interest rate was 8.73%. 

HELOC activity surged in the first half of 2022, but that demand has since waned. 

Over the first half of 2024, lenders originated 671,00 new HELOCs totaling about $105 billion, CoreLogic said, which was down from the same period last year.

Why homeowners are raiding their homes for cash

Homeowners are tapping into their home equity to cover expenses such as home renovations or to consolidate debt. They’re taking on a second mortgage rather than refinancing because they want to avoid giving up the relatively low rate on their primary mortgage. 

Nearly nine in 10 homeowners with a mortgage have a rate below 6%, many of them far lower than the prevailing 30-year rate of 6.67% reported by Mortgage News Daily on Thursday morning. That has created a persistent lock-in effect that has put a damper on home-sales activity.

With the housing market likely to remain frozen for the time being, and “given prolonged high home prices, some owners are likely to continue to tap accrued home equity for necessities such as home renovations or settling higher-interest-rate debts,” CoreLogic added.

Homeowners in California were the most active in terms of home-equity lending activity. 

The four metropolitan areas with the most home-equity loans in the first half of 2024 were all in California: Los Angeles-Long Beach-Glendale, Anaheim-Santa Ana-Irvine, San Diego-Chula Vista-Carlsbad and Riverside-San Bernardino-Ontario. 

The average California homeowner gained approximately $55,000 in equity over the past year, CoreLogic noted.

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