Homeowners

Homeowners Are Tapping into Their Home Equity Like It’s 2008

October 28, 2024

A perfect storm of circumstances—high home prices, even higher mortgage interest rates, and low inventory—pushed homeowners to tap into their home equity at levels not seen in more than 15 years.

During the first two quarters of 2024, there were more than 333,000 home equity loans taken out by homeowners, totaling $23.6 billion, according to a new report by CoreLogic, a real estate data provider based in Irvine, Calif.

That’s the highest amount of home equity lending in the first half of the year since 2008.

The number of home equity loans rose 40% and the dollar amount shot up 69% in the first two quarters of this year compared to last year, according to the report.

“Because the value of their homes has greatly appreciated, homeowners have accrued more equity,” said Archana Pradhan, principal economist at CoreLogic. “People who bought when mortgage rates were at a historic low…are now choosing to make necessary property improvements or repay debts instead of buying a new home at a higher price and higher interest rate.”

Given how high home prices have risen in recent years, the equity that people have in their home has risen as well. (Nationally, the median home list price has risen about 17.7% from September 2021 to September 2024, according to Zillow data.) That is leading people to access that equity to fund home improvements or pay off other debts.

How homeowners are tapping into home equity

Those who need money for home improvements often opt to do a cash-out refinance. This is where the homeowner takes out a new, larger mortgage that replaces the old one and gets the difference in cash.

However, the current mortgage rate in today’s market may be higher than what they have on their existing mortgage. That’s leading more people to look to home equity loans. This is when the homeowner takes out a new loan against the equity in their home and receives the cash straight-out.

These funds may be used for renovations or other major expenses. The home is the collateral for the loan. Home equity loans also have fixed interest rates and typically have shorter repayment terms than a traditional mortgage.

A HELOC also helps homeowners use their equity

Home equity loans aren’t the only way to access home equity. Another option that is popular is the home equity line of credit, which is known as a home equity line of credit, aka a HELOC.

HELOCs work in a manner similar to credit cards, with the lender loaning a certain amount of money for a particular time period so homeowners can renovate or pay for major expenses such as college tuition. They withdraw the money as needed until the credit limit—the amount of the HELOC—is reached.

HELOCs, which have variable interest rates that can change every month, have two phases. During the draw period, which typically runs for 10 years, the homeowner can access all or part of the credit and makes scheduled payments only on the interest.

During the repayment period, no more money can be withdrawn, and the borrowed money must be repaid within a specific time period, generally double the amount of time of the draw period. The repayments are much higher because they include interest as well as principal.

Borrowers are required to repay with either a lump-sum balloon payment or via a pre-determined amortization schedule. They are not required to withdraw all the HELOC funds, and there’s no interest payments on money that isn’t needed.

HELOC activity actually declined slightly in the first two quarters of this year, falling from $107 billion in 2023 to $105 billion in 2024, according to the CoreLogic report.

Which metros tapped the most home equity?

Certain metropolitan areas took out more in home equity loans than others.

California, led by Los Angeles, held eight of the top 15 spots for metros with the highest amount of home equity loans in the first half of 2024 compared to the first half of 2023, according to the CoreLogic report.

Los Angeles metro residents generated $1.88 billion in home equity loans, nearly six-fold more than in 2023. The metro was followed by Anaheim, with $1.02 billion. San Diego ranked third at $967 million.

“The markets with the largest home price growth over the past few years are the ones with the biggest year-over-year gains in home equity loan activity,” Pradhan said. “In Texas, for instance, home appreciation is not going up in all areas.”

Pradhan noted that the typical California homeowner added about $55,000 in equity in the second quarter of 2024 compared with the same period in 2023. Meanwhile, in Texas homeowners lost about $2.6 billion in home equity during the same stretch.

As long as long as mortgage interest rates remain elevated, some owners are likely to continue to seek either HELOCs or home equity loans, said Pradhan.

Here are the top 15 metros with the highest dollar volume of home equity loans taken out in the first half of 2024:

1. Los Angeles

2. Anaheim, Calif.

3. San Diego

4. Riverside, Calif.

5. Las Vegas

6. Sacramento, Calif.

7. Oakland, Calif.

8. San Jose, Calif.

9. Atlanta

10. Washington, D.C.

11. Phoenix