Despite signs of a cooling housing market, Black Knight’s latest Mortgage Monitor Report revealed U.S. home prices are up 42% since the start of the pandemic.
The annual rate of appreciation has cooled slightly, but for the time being, home prices, rising interest rates, and lack of inventory have made affordability difficult for most homeowner hopefuls.
In fact, a recent Zillow survey reported that half of Americans have said they’ve cried at least once while going through the process.
However, with rising home prices comes increasing wealth for existing homeowners with mortgages.
The report found that tappable home equity has reached another all-time high of $1.2 trillion in the first quarter of 2022.
According to Ben Graboske, president of Black Knight Data & Analytics, this is the largest quarterly growth on record.
“Tappable equity” is the amount mortgage holders can borrow against while keeping 20% in their homes.
In April, home price growth fell from 20.4% to 19.9%. However, Graboske acknowledged that it’s likely the full impact of recent mortgage rate increases has not been fully realized.
“April’s decline is more likely a sign of deceleration caused by the modest rate increases in late 2021 and early 2022 when rates first began ticking upwards,” he said. “The March and April 2022 rate spikes will take time to show up in repeat sales indexes.”
With average-priced homes up 42% since the beginning of the pandemic, homeowners have an average of $207,000 in equity available if they choose to tap into it.
Experts say the most common ways homeowners choose to cash out on home equity are with a home equity loan, home equity line of credit, or a cash-out refinance.
A home equity loan allows borrowers to take out a specific amount that they repay over a period of time, while HELOCs act as a revolving line of credit and work similarly to a credit card.
The most popular option, a cash-out refinance, replaces an existing home loan with a new, larger loan. The borrower receives the difference as a lump sum of cash after closing.
Not all lenders offer each type of loan, experts say, but it’s important to work closely with a trusted mortgage lender to determine which loan type fits best into a borrower’s specific goals.
Home equity can be used for any type of project or purpose of the borrower’s choosing, including home improvement projects, investments, paying down high-interest debts, or even for school or a wedding, experts say.
Photo by RODNAE Productions