The recent surge in home prices pushed U.S. homeowners’ tappable equity to a record $11 trillion.
Prices were on a run in March, according to the ICE Home Price Index, up 1.2% and more than 25% above the 25-year average increase. This is the third straight month of above-average gains as stock shortages keep competition for limited homes high.
As a result, mortgage holders’ equity shot to a record $16.9T in Q1, $11T of which can be leveraged while retaining a 20% equity cushion, both of which are all-time highs.
“We’re still very much in a hole from an inventory perspective, but that deficit has fallen from 50% a year ago to 38% in March. Today, with 3.3 months of supply, inventory is still historically low and indicative of a seller’s market. This is helping to keep home price growth resilient even though demand is down,” Andy Walden, ICE’s Vice President of Enterprise Research Strategy, commented.
A record 48 million homeowners have equity they can tap, an average of $206,000 per borrower. This is up from $185,000 in May 2023.
Additionally, two-thirds of all tappable equity in the U.S. is held by homeowners with credit scores of at least 760.
In the grand scheme of lending, American homeowners are a low-risk, high-reward group with plenty of wealth to access.
The market for HELOCs and other forms of equity lending is shifting to accommodate these changes. Freddie Mac filed a proposal with the FHFA to enter the secondary mortgage market.
But homeowners may not be all-in on equity lending yet. ATTOM reported that HELOC lending actually fell in the last quarter of 2023, though it saw it saw a four-fold increase from 2022.
Rising rates have made home equity loans less attractive, and it’s not a new phenomenon. One study found that, despite homeowners’ equity growing 241% over the past 10 years, the outstanding loan balances for home equity loans and HELOCs shrank by 48% over the same period.
“Americans are feeling financial stress in various ways right now: credit card debt is at all-time highs, savings rates have dipped, and inflation has dramatically increased the cost of living,” said Eddie Lim, Co-Founder and CEO of Point.
“However, homeowners are sitting on significant wealth they could use to improve their situations but don’t have a great option to access the wealth. It’s like we’ve all lost the PIN to our debit card–we have the money but don’t know how to access it.”
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