Home equity lending has been trending sharply upward in the last two years after years of falling volume, reports Frank Nothaft of CoreLogic.
The trend is occurring thanks to more homeowners benefiting from home price appreciation and more lenders see opportunity in the loan segment. During the first nine months of 2015, lenders approved nearly one million new home equity lines of credit with an aggregate credit limit in excess of $115 billion. Also known as a HELOC, new approvals during 2015 were on pace to be the largest amount since 2008, and more than double the volume just three years ago
Still, the HELOC market in 2015 was still less than one-half the volume in 2006, but signs are pointing to continued loan demand and product availability. Two factors driving the growing consumer interest in HELOCs are the growth in home equity and the desire of homeowners to keep their low-interest-rate first mortgage. Home-value growth is the primary building block for home equity, and the CoreLogic Home Price Index for the U.S. has found an average 36% appreciation from its 2011 trough.
These value gains have fueled the $6 trillion increase in home equity since mid-2011. Further, there has been a large increase in owners with at least 25% equity in their home, meaning that they have sufficient equity built up to prudently tap into a part of it with a home equity loan. Today, more than 60 million homes are either owned ‘free and clear’ of debt or the owner has at least 25% equity. That’s an increase of more than 10 million homeowners with at least 25% equity since the Great Recession.