Takeaways:
- Total home equity in the U.S. has reached an eight-year high.
- California is home to the highest volume of “tappable” equity.
- Growth in available equity could allow more borrowers to pull cash out.
Total home equity in the U.S. has increased by nearly $1 trillion in the past year, reaching the highest level since 2007.
When looking at the nation’s population of mortgage holders and comparing first- and second-lien debt against May property values, the average American homeowner has about $19,000 more equity in their home today than a year ago, according to a recent Black Knight Financial Services’ report.
Additionally, homeowners with a mortgage have nearly $168,000 more equity than at the beginning of 2015.
This growth in available equity has direct implications for borrowers’ ability to access the equity in their homes.
“When we look at the amount of equity available on each home with a mortgage — using an upper limit of 80 percent total combined loan-to-value (LTV) — we’re looking at over 37 million borrowers that have ‘tappable’ equity available,” said Ben Graboske, SVP of Black Knight.
The amount of equity available runs from an average of about $42,000 for those homes in the bottom 20 percentile, in terms of property values, up to $267,000 for those in the top 20 percentile. The nationwide average sits at $120,000.
Black Knight also found that of the $4.5 trillion in tappable equity, $1.7 trillion (39 percent) lies in California. The next closest state is Florida, with $278 billion of available equity. By volume, California, Florida and eight other states account for 74 percent of all tappable equity.
Looking at specific metros, Los Angeles alone accounts for 14 percent of the nation’s total available equity.
While the nation’s equity situation has improved, Black Knight cautioned that the risks posed by second-lien home equity lines of credit (HELOCs) still exist.
HELOC delinquency rates are at the lowest level since April 2007; however, nearly half of all existing HELOCs originated in the precrisis years of 2005-2007 — roughly 3 million — are facing draw period expirations over the next 2 1/2 years.
Graboske explained these borrowers are looking at payment shocks of nearly $250 per month on average. Additionally, 29 percent of those facing resets have less than 10 percent equity in their homes, making refinancing their way out of payment shocks problematic.
