Home equity surges and lenders smell opportunity

With home prices climbing and mortgage rates keeping owners locked in place, Americans are sitting on a record $34.5 trillion in home equity and lenders are eager to cash in.  

The $34.5T in equity marks a $600 billion increase from last year. The total equity Americans have in their homes is up $4.7 trillion from the first quarter 2023, a 15.7% increase.

Matt Schulz, chief consumer finance analyst at Lendingtree, attributed the increase to a combination of rising home prices and high interest rates that have kept many homeowners from moving.

"The longer they stay in their home, the more of their mortgage they pay off," Schulz said. "Combine that with increasing home prices and you get significantly higher home equity. That's a big deal for homeowners."

The average home equity loan was just over $144,000, according to the report, up more than 38% from two years ago, with the average borrower paying about $1,200 a month for their loan. Schulz said many borrowers put the money towards investments and other forms of improvements. 

"That extra money can go toward doing a more substantial home renovation, consolidating other debts, paying educational expenses or even starting a small business," he said.

Home equity loans by state

Several western states led the way for the highest equity loan offers. Hawaii took the top spot, with an average loan of more than $493,000. California was second with an average loan of $326,900. These states typically rank at or near the top of rankings for states with the most expensive homes.

In contrast, more rural states in the South and Midwest came in at the bottom for home equity loans. West Virginia was last with an average loan offer of around $64,900 while Iowa was next with the typical loan being just over $72,800.

The rise and risk of home equity products

With interest rates high, many lenders are predicting that home equity products, including open-ended HELOCs and close-ended equity loans, will grow over the next two years. A report last month from the Mortgage Bankers Association predicted a 9.8% growth in HELOCs over the next year as well as 6.6% rise in home equity loans.

That rise in popularity brings challenges though. Some borrowers still don't understand equity products or how they work, surveys show, and many who take out HELOCs end up not using their credit line. The increasing use of online lending services has also created more opportunities for fraud. In one instance, criminals tricked mortgage lender Newrez into wiring them $425,650 by submitting forged documents and pretending to be a couple with an active HELOC.