Is home equity, now at $11.5 trillion, at its peak?

Home equity climbed to a historic high of $11.5 trillion in the second quarter, but it could be nearing its peak as major equity-rich markets on the West Coast begin to show signs of decline. 

Tappable equity, the amount available for homeowners to access while retaining at least 20% equity in their homes, rose again for the 10th consecutive time, according to Black Knight. It rose $500 billion from the previous quarter and $2.3 trillion from the same period in 2021. Black Knight calculates homeowner equity levels by leveraging loan-level mortgage performance data and its home price index. 

While homeowners saw home equity rise, the pace of growth slowed, especially on the West Coast. 

“Equity growth slowed, however, as home price appreciation began to moderate, with some of the hottest markets even posting equity declines amid rising interest rates and affordability concerns,” said Andy Walden, vice president of enterprise research and strategy at Black Knight. 

A total of 11 of the nation’s 50 most equity-rich markets posted declines in the second quarter, according to Black Knight. All of the markets were in the West Coast including eight in California. The Golden State saw a decline of $155 billion in tappable equity posting $3.5 trillion from April to June. 

San Jose, California saw the strongest pull back in tappable equity which fell 12% by $55 billion. Tappable equity in Seattle, Washington fell by $38 billion (-10%), San Francisco, California declined by $42 billion (-5%) and Los Angeles, California dipped by $36 billion (-3%). 

At the end of second quarter, the average U.S. homeowner had $216,900 in tappable equity, up 5% by $9,700 from the previous quarter and an increase of 25% by $43,400 from the same time in 2021. 

“With 73% of equity held by borrowers who have locked in first lien interest rates below 4%, borrowers may be reticent to access their equity via refinancing,” said Walden. “As a result, we expect to see more homeowners turning toward second lien home equity products.”

While home equity lending was dominated by depository banks for years, nonbank lenders are targeting the space as they seek volume in a downmarket.

Rocket Mortgage rolled out a home equity loan this week, which will give homeowners access to up to $350,000 of their home equity while maintaining at least 10% equity. 

Last month, Guaranteed Rate introduced a digital home equity line of credit (HELOC), a revolving line of credit that allows borrowers to draw, for two-to-five years. loanDepot and New Residential Investment Corp. join the list of nonbank lenders that plan on launching HELOC products.

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