Analysis: Homeowners increasingly turning to home equity loans amid economic pressures

In the current real estate market and wider economy, homeowners are seeking ways to make use of the equity in their homes due to high prices. According to a study conducted by the real estate platform RubyHome, searches for “heloc” (home equity line of credit) have reached an all-time high, showing a remarkable increase of 305 percent as of July 2023. Hawaii, Utah, and Colorado have recorded the highest search volumes for this topic.

By utilizing a home equity line of credit, property owners have the opportunity to borrow against the equity they have accumulated in their homes. The funds obtained can be used to cover significant expenses such as roof repairs or car payments.

This surge in interest coincides with the Federal Reserve’s rate hiking cycle, which has led to a rise in mortgage rates and affected the housing market. Consequently, homeowners who purchased properties a few years ago at lower prices and interest rates may now feel trapped. They recognize that buying a new home at current higher prices would mean forgoing their historically low interest rate, making them hesitant to move. Home equity loans, albeit with higher rates, still work in their favor, as the blended rate of the HELOC combined with their first mortgage remains lower than market rates for a new mortgage.

Mortgage rates remain stubbornly high following their recent peak, as the Federal Reserve continues to grapple with inflation, which has significantly impacted the housing market. According to Freddie Mac, the benchmark 30-year fixed rate mortgage dropped slightly last week, but is still at 6.78 percent.

Meanwhile, the combination of increased demand and limited inventory is causing home prices to rise and approach the levels seen last summer. Data from the National Association of Realtors reveals that median sales prices in June exceeded $400,000 for only the third time on record. Federal Reserve Board Chairman Jerome Powell acknowledges that the housing market has yet to find balance after the latest interest rate increase. Many homeowners, unwilling to sell due to the value of their low-rate mortgages, are contributing to the tight supply of existing homes, which in turn is keeping prices high.