Home equity originations surge as consumers look to unlock home equity
These market conditions don’t suddenly erase homeowners’ expectations, needs, and goals. Growing families need more space. Motivated homeowners want to update and upgrade home features. Then there’s all the other needs and wants for which a sizable chunk of home equity presents an appealing source of financial fuel: buying a car, consolidating debt, or taking other big financial steps.
That’s why we’re seeing savvy lenders shift their focus to helping homeowners unlock that value through HELOCs. In fact, 2022 was the strongest year for home equity originations since the financial crisis. After declining through 2019 and 2020, second mortgage originations turned around in 2021 and then took off: a 41% YOY jump in 2022 and a projected 24% YOY increase through 2023, according to TransUnion. That growth represents nearly 200% more originations in the last two years — from 1.9 million in 2021 to a forecasted 3.7M units by the end of 2023.
Despite massive growth, it’s worth repeating the key figures on the outstanding opportunity: U.S. homeowners hold an estimated half trillion dollars in existing HELOCs — with roughly $19 trillion remaining in untapped equity. Moreover, one in five homeowners say they plan to take out a home equity loan in the coming year — up from 8% a year ago.
As rates trend down, cash-out refinancing becomes more attractive
Despite the regional banking crisis of early 2023 and the relative easing of inflationary pressures, Fed rates continue to increase — and mortgage rates have remained fairly flat in the high 6’s and low 7’s. This adds a wrinkle to the home equity equation: As rates trend down which is forecasted to occur through 2024, cash-out refinances begin to look better than HELOCs for more homeowners.
This point is particularly salient given reports around concerning levels of high-interest debt — primarily credit cards. Credit card rates are trending up, and total balances are rising to levels where they can become an unclimbable mountain for consumers. A recent quarterly report from the Federal Reserve Bank of New York states credit card debt has exceeded $1 trillion, a series high and $45 billion increase from Q1 of 2023. Home equity is a powerful tool for consolidating debt to get monthly cash flow back into a healthy range.