Unlocking the Power of Home Equity
As interest rates continue to fluctuate, homeowners are rethinking their approach to tapping into their home’s value. After a two-year slump, mortgage holders are once again withdrawing significant amounts of home equity, with $48 billion withdrawn in the third quarter alone. This surge is largely attributed to the Federal Reserve’s recent rate cut, which has made borrowing more accessible.
A Treasure Trove of Equity
U.S. homeowners are sitting on a staggering $17 trillion in total equity, with $11 trillion of that being tappable. The average homeowner has a remarkable $319,000 in equity, with $207,000 of that being accessible for borrowing. Despite this wealth, homeowners have been cautious in tapping into their equity, withdrawing just 0.42% of all tappable equity in the third quarter.
The Impact of Rate Hikes
The Federal Reserve’s rate hikes over the past two years have significantly increased the cost of borrowing against home equity. For example, the monthly payment needed to take out $50,000 in a HELOC more than doubled from $167 in March 2022 to $413 in January of this year. However, the latest rate cut has reduced this cost, and further cuts are expected to have a positive impact on borrowing.
A More Affordable Future?
If the market’s predicted 1.5 percentage point rate cut comes to fruition, the cost of borrowing against home equity could fall significantly. This could lead to an increase in HELOC utilization, especially among homeowners who are sitting on record amounts of equity and locked into low first lien rates.
Home Equity Growth Slows
As home prices ease and more supply comes onto the market, home equity growth has begun to moderate. Primary mortgage rates are higher than they were over the summer, giving sellers less pricing power. However, with interest rates expected to continue falling, homeowners may soon find themselves with more opportunities to tap into their home’s value.
The Future of Home Equity Lending
As the market continues to shift, one thing is clear: homeowners are poised to take advantage of their equity like never before. With rates expected to fall and tappable equity at an all-time high, the future of home equity lending looks bright. Will you be one of the homeowners taking advantage of this trend?
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