According to a report from LendingTree, US homeowners currently possess a total of $28.7 trillion in home equity, which equates to roughly $334,000 of equity per owner-occupied housing unit. Although this figure has decreased from a record high of $31.8 trillion in the second quarter of 2022, it remains a significant amount. The accumulation of home equity in the US is primarily a result of rising home prices and values.
Wells Fargo economists have highlighted that the substantial increase in home prices could potentially help consumers weather the economic impact of dwindling savings during the pandemic. They describe soaring home prices as an "underappreciated tailwind" for homeowners. Despite higher interest rates making borrowing more costly, home loans typically carry lower interest rates than credit card debt, especially when considering the tax deductibility of mortgage interest.
In a recent analysis by LendingTree, it was found that the average home equity loan offer across all 50 states was $104,102, based on 580,000 loan offers from January 1 to July 31, 2023. Massachusetts, New York, and Vermont had the highest average loan offers, exceeding $135,000, while Mississippi, North Dakota, and Missouri had the lowest offers, around $75,000.
However, Jacob Channel, a senior economist at LendingTree, has cautioned that there are potential drawbacks to taking on a home equity loan. Qualifying for such loans can be more challenging than for other types of debt, and defaulting on a home equity loan can have serious negative consequences. Channel advises borrowers to fully understand the associated risks before rushing into obtaining a home equity loan.
Overall, the increase in home values has boosted the real estate sector during the pandemic, with it now accounting for approximately 25% of household assets, according to Wells Fargo data. The continued rise in home equity provides an opportunity for consumer spending to remain resilient in the future. The Wells Fargo economists also suggest that increased home equity, along with a surge in mortgage refinancing, may support household financial stability in the years ahead.