Home equity is at a new high.
The Federal Reserve’s most recent Flow of Funds report shows the total market value of all U.S. residential real property exceeded $26 trillion in the second quarter. The outstanding balance on the home mortgages borrowers have taken out on those homes rose to $10.4 trillion. That leaves some $15.6 trillion in home equity equates, of which consumers have tapped roughly $530 billion in home equity lines of credit, up $10 billion from the end of the first quarter.
Though equtiy is up, consumers seem to be cautious about using it: Home equity lines’ balances — that is, the amount of approved credit borrowers have actually drawn on — dropped by $6 billion nationwide, a decrease of a little more than1 percent from the previous quarter. The total number of borrowers dropped to 15.3 million, a decline of 1.5 percent.
Jon Giles, head of Home Equity Lending at TD Bank, said one explanation for the nationwide trend might be because homeowners do not always understand how home equity loans can pay dividends.
“We’ve found that many homeowners simply aren’t aware of how they can leverage the equity in their homes,” Giles said. “Home-equity financing is ideal for projects that will add value to one’s home, such as a renovation. It’s also frequently tapped to consolidate higher interest-rate debt, or to help with education expenses.”
While nationwide numbers indicate caution among borrowers, home values in our area are on the upswing, and local banks are busy as customers tap into equity.
“We have experienced an increase in home-equity loan activity at Mountain West Bank,” its president and CEO, Scott Anderson, told the North Idaho Business Journal. “Rising property values, a strong local economy and a favorable interest rate environment fuel the demand for home-equity loans.”
The increase in traffic has not adversely affected the time it takes to close on such a loan. Local banks are still managing their goals of 24 hours or less for prospective borrowers.
“As a community bank here to serve our customers, making more loans to qualified borrowers helps the bank grow and prosper,” Anderson said. “As we’ve seen in previous economic cycles, real estate values tend to fluctuate. As long as our local economy is solid, and if we continue to do our job making loans to credit-worthy borrowers with the ability to repay them, I don’t foresee challenges with rising housing prices.”
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