- US home equity has surged to a record level at US$27.8 trillion in Q1 2022.
- Although US home equity shot up to a record level, soaring interest rates keep buying expensive.
- The rise in home equity is marred by a rapid rise in mortgage rates for homeowners to benefit from.
US homeowners have currently more equity, which has touched the highest level ever. A Federal Reserve data reveals that US home equity grew almost 20% in the first quarter of 2022 to US$27.8 shattering the previous record.
Data showed that tappable equity surged by US$1.2 trillion in the first quarter of this year to more than US$11 trillion. Close to three-fourths of those homeowners have mortgage rates below 4%.
The growing home prices are boosting the finances of those who already own them. However, a double-digit price rise has made it difficult for new buyers from owning one. The US housing market is currently red hot and the rise in home equity is just another consequence.
Yet, people aren’t able to reap the benefits and enjoy the increase in home equity. The rising interest rates have cut into their extra equity, which is the difference between the market value of the property and the mortgage balance.
© Walleyelj | Megapixl.com
People withdraw equity through cash-out refinances
As the equity increases, people have also started withdrawing it via refinances. Almost 60% of equity was withdrawn in 2021 via refinances.
Homeowners take to the home-equity lines of credit in withdrawing the money. Borrowing costs on such products are governed by the Federal Reserve’s benchmark rate, which incidentally is moving less than mortgage rates this year.
Driving to tame inflation, the Fed is expected to increase rates again at its meeting this week.
Usually, a rise in home equity is linked or proportional to rising home values over time. In the US, home equity plunged by almost 42% between 2005 and 2012. It was because US homeowners started to owe more in mortgages than the values of their homes. It was since 2012, that the home equity gradually started to move upward. This year’s 20% jump in Q1 is the largest since 2013.
This rise in home equity is a silver lining for the mortgage industry and the time is ripe for them to rake in the moolah. Otherwise, the mortgage industry was going through a downturn after it saw a boon in 2020 and 2021.