Homeowners who have built up equity in their homes are tapping that equity at the highest rate since 2008, according to a report from CoreLogic.
The D.C. metro ranks in the Top 10 for home equity lending through the first half 2024.
“In the D.C. metro area, home prices have shot up a lot, an average of 36% increase over the last five years. Homes are worth a lot more now. There are not very many homes for sale, which keeps prices high. The D.C. area has good jobs,” said Archana Pradhan, an economist at CoreLogic.
Home equity loans nationwide totaled $23.6 billion in the first two quarters of 2024, up 69% from the same period last year. The average rate on a home-equity loan is currently 8.36% according to Bankrate.
The report did not cite average amounts of equity loans as a percentage of loan-to value ratio or LTV. The amount borrowed can up to 85% of existing equity, according to LendingTree.
Average home prices nationwide have surged more than 40% since 2020, according to the Federal Reserve, and much more in many areas of the country.
Home equity loans are different from Home Equity Line of Credit loans, or HELOCs, in which case an owner takes out a line of credit on which to draw as needed, and whose balance turns into a repayment second mortgage, usually after 10 years. A home equity loan is a lump sum of cash drawn against the equity a homeowner has up front, with a fixed rate to be repaid over a fixed period of time.
Both are an alternative to cash-out refinancings, which require a new mortgage and in most cases almost certainly a higher mortgage rate.
According to Core Logic, the D.C. metro ranks No. 10 for home equity lending in the first two quarter of the year, at about $600 million, It did not break out the number of individual home equity loans by metro. Los Angeles tops the list, at $1.88 billion, an almost sixfold increase from 2023, according to CoreLogic. Seven of the top 10 metros for home equity loans this year are in California.
The CoreLogic report did not cite specific data on most common reasons for soaring home equity loans, but points to dynamics that are different now than what was considered irresponsible equity tapping in the 2000s.
“Lenders were handing out money left and right. The regulations were loose, It was pretty lax. Risky borrowers with low credit scores could get loans without providing income. Things are much stricter now to prevent a repeat of those days,” Pradhan said.
With existing mortgage rates high, and inventory for available homes for sale low, more homeowners choosing to stay put instead of moving up. Many who locked in rates a few years ago that are considerably lower than now see the equity as a way to renovate and expand their existing homes to stay put.
Many may also be tapping that equity to consolidate other high-interest debt. Credit card rates, for example, remain near a record high, averaging 20% or more.
CoreLogic’s equity lending report is online. Below are the metros with the highest level of home equity lending through the first two quarters of 2024, courtesy CoreLogic:
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