Refinancing activity has dropped dramatically among rising interest rates, with Bankrate reporting the national 30-year refinance rate at 7.07% on Oct. 17. However, homeowners have begun seeking alternate options to refinance.
According to a new report from CoreLogic, home equity lines of credit (HELOCs) and home equity loans are gaining popularity as homeowners seek to tap their accumulated equity. The report found that HELOC activity recently grew to its highest level since the first half of 2007.
- In the first two quarters of 2022, lenders originated more than 807,000 new HELOCs totaling almost $131 billion.
- Both HELOC counts and amounts have increased by 30% year-over-year in 2022.
- Out of the top 15 metros, minus the exceptions of Chicago, Minneapolis, and Washington, HELOC amounts increased in 2022 compared with 2021.
- So far in 2022, Seattle has the highest amount of approved HELOCs, totaling almost $610 million, for an increase of 63% from 2021.
- Los Angeles followed with $606 million, while Phoenix ranked third at $504 million.
What this means for the market:
“HELOC demand is likely to remain strong, as cash-out refinances are waning because of rising interest rates,” stated the authors of the report. “Home equity grew significantly over the last couple of years, and owners with substantial equity may prefer to keep their existing low rates, thus choosing HELOCs over cash-out refinances.”
Steve Kloetsch , CEO and managing broker of RSVP Real Estate ERA Powered, which is based in Seattle where HELOCs are at their highest, commented:
“HELOCs, when families have great equity positions in their home is a great financial tool to have in place to take advantage of opportunities…but…the consideration is that the common margin above the Prime rate is probably around 0.5%-1.5%. With the Fed likely to raise the Fed Funds Rate by another 0.75% at their upcoming meeting, Prime will be at 7%…and possibly going higher. This puts the HELOC rates to 7.5%-8.5% and likely going higher. If someone plans to use a significant amount of the HELOC…and a significant amount for the coming years, it may be wiser and more secure to complete a cash out refinance. As always, homeowners just need to weigh the pros and cons.”
Concluded Kloetsch, “We tell our agents to have their clients speak with a trusted lender to review the pros and cons. The Seattle market is so active it’s always a challenge to see ahead even a three to six month view. We look at the level of appreciation as the factor being slowed which is of course the case. So far we see prices have plateaued for a while versus dropped from values in January of this year. What has dropped is the level of appreciation month-over-month that we were experiencing.”
For the full report, click here.