HELOCs on the Rise Again
Last week, the Case-Shiller home price index reported a 31-month high in January’s home prices. The 20-city composite index appreciated 5.7% during the three-month period ending in January, for a 5.9% increase year-over-year. Home values saw significant appreciation in 2016. Black Knight Financial Services reported an annual home price appreciation of 5.5% during 2016, bringing the number of mortgage holders with “tappable equity” up to 39.5 million.
National Mortgage Professional Magazine defines tappable equity as “the amount of lendable equity available to a borrower before hitting a combined loan-to-value ratio of 80%.” In 2016, tappable equity reached a national value of $4.7 trillion, the highest level since 2006.
Refinance applications have begun to drop off, as most homeowners have already taken advantage of historically low rates. As home prices continue to appreciate, home equity lines of credit (HELOCs) are becoming more attractive to homeowners. According to recent data, millennials are more interested in HELOCs than any other generation of homeowner.
According to a TD Bank survey, millennials are using HELOCs more than Gen-Xers or baby boomers. The survey shows “more than third of millennials said they are considering applying for a HELOC in the next 18 months, which is nearly twice the rate of Gen-Xers and nine times that of baby boomers.” According to the survey the top two reasons for HELOC financing were home remodel and debt consolidation, respectively.
With tightened inventory and appreciating home values, some homeowners are choosing to reinvest in their starter home, rather than trade up. Some housing professionals expect HELOCs to replace refinance applications in the coming years.
Sources: CNBC, HousingWire, MarketWatch, National Mortgage Professional