These Are The 10 Major Housing Markets That Just Saw The Biggest Declines In Home Equity

As home prices soared in recent years, homeowners enjoyed record levels of tappable home equity, which is the amount of money a homeowner can borrow against while keeping a 20% equity stake. But that’s all changing as home prices begin to fall, with July seeing the largest decline in home prices since 2011, according to real estate data and analytics company Black Knight’s most recent Mortgage Monitor. (See the lowest rates home equity rates you may qualify for here.)

Indeed, while tappable equity hit another record high in the second quarter of the year, its growth appears to have peaked. “While mortgage-holders’ tappable equity had grown 25% from last year to hit another record high in Q2, we noted that equity actually peaked in May and tracked the pullback that began in June before escalating in July,” says Ben Graboske, president of Black Knight Data & Analytics. “Tappable equity is now down 5% in the last two months, setting up Q3 to likely see the first quarterly decline in tappable equity since 2019.”

In some markets, this drop in tappable home equity is especially acute, the Black Knight data revealed. Five of the most equity-rich West Coast markets saw tappable equity decline by 10% to 20% from April to July. Here’s how large the declines in tappable equity were in the 10 most equity rich markets:

  • San Jose, -20%
  • Seattle, -18%
  • San Diego, -14%
  • San Francisco, -14%
  • Los Angeles, -10%
  • Washington DC, -4%
  • Chicago, 6%
  • Dallas , 6%
  • New York, 8%
  • Miami, 8%

Meanwhile, among the 50 most equity rich markets, here’s what happened with tappable home equity:

  • San Jose, -20%
  • Seattle, -18%
  • Oxnard, Calif. -14%
  • San Francisco, -14%
  • San Diego, -14%
  • Denver, -12%
  • Sacramento, -12%
  • Santa Cruz, -11%
  • Riverside, Calif., -11%
  • Los Angeles, -10%

One big reason why tappable equity is down is, of course, that home prices are down. But it’s also likely that rising interest rates are to blame for how much equity is being withdrawn, as rising rates change how homeowners tap their equity. Homeowners had previously taken advantage of lower rates to take out HELOCs and home equity lending was up nearly 30% quarter over quarter, the largest volume in almost 12 years.

What to consider if you’re thinking about taking out a HELOC

HELOCs tend to be a far more affordable way to borrow money than either credit cards or personal loans, particuarly for homeowners with significant equity in their homes. And they can be a smart option for borrowers looking to consolidate high-interest debt or fund home improvement projects. But it’s important to get your finances in order, your credit score as high as possible and to shop around for rates. See the lowest rates home equity rates you may qualify for here.

It’s also important to understand how HELOCs work, too. They are composed of a two-part structure, which is usually a 10-year draw period and a 20-year repayment period, which together equal a 30-year term. During the draw period, borrowers can withdraw as much or as little money as they like. But once the repayment period begins, money can no longer be withdrawn and the borrower begins to pay back the principal in addition to interest.

Because HELOCs are based on the amount of equity someone has in their home, the amount of money a borrower qualifies for will vary. Remember that HELOCS tend to have variable rates, which might start out low but could increase if rates rise. And because you’re using your home as collateral to take out a loan like this, you risk of losing your home if you’re unable to make your scheduled payments.

By : Alisa Wolfson

Source: These are the 10 major housing markets that just saw the biggest declines in home equity – MarketWatch

Existing Home Sales data showed a drop of 5.9% from June to July and a 20.2% drop from the same period one year earlier, marking the sixth consecutive month of decline. The median price of a house rose 10.8% from one year prior to a price of $403,800, but it’s still down $10,000 from the previous month’s high, according to the National Association of Realtors.

These drops occurred despite the inventory of unsold houses rising to 1.31 million by the end of July.

“The ongoing sales decline reflects the impact of the mortgage rate peak of 6% in early June,” said NAR Chief Economist Lawrence Yun. “Home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers.”

The rise in mortgage rates has helped to rapidly cool what had been a red-hot housing market, hitting a record high in median home prices. The Federal Reserve boosted the rate in an effort to contain rampant inflation.

The six-month decline marks perhaps the fastest drop off since 2005, according to Seeking Alpha.

The average seasonally adjusted rate of home sales over the past decade hovered around 5.35 million, but the current level is at around 4.81 million, down from 6.50 million in half a year. Only the first year of the pandemic shows a more severe decline in home sales.

The previous non-pandemic rate to hit a similar cliff dive occurred in 2005 after the housing bubble peaked. The following decline occurred over nine months from 2006 into 2007 and rolled into the housing crisis of 2008. And the Conference Board posted an annual rate of change in its Leading Economic Index of 0%. Seeking Alpha noted that should the rate enter negative territory, it would be the 13th time since 1960, and 66% of those previous instances preceded a recession.

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