The value of homes is almost at an all-time high. Financial experts say it might be hard to use because interest rates are so high.
According to new data from CoreLogic, the total amount of home equity held by people with mortgages in the U.S. reached more than $17 trillion in the first quarter of 2024. This was just below the record set in the third quarter of 2023.
CoreLogic says that the average amount of wealth each borrower has grown by $28,000 since last year, bringing the total to about $305,000. CEO Selma Hepp said that’s almost 70% more than the $182,000 that was made before the COVID-19 pandemic.
Most people who own their own homes have a debt. Their equity is the value of their home minus the amount of debt they still owe. There is $34 trillion in home equity in the U.S. for people who own their own homes and don’t have a debt.
Hepp said that the main reason for the rise in home wealth is the rise in home prices.
She also said that a lot of people refinanced their mortgages early in the pandemic, when interest rates were “really, really low.” This may have helped them pay off their debts more quickly.
Lee Baker is the founder, owner, and president of Apex Financial Services in Atlanta. He said, “People who owned their homes at least four or five years ago are feeling fat and happy on paper.”
But Baker, a certified financial planner and part of CNBC’s Advisor Council, and other financial advisors said that getting to that wealth is hard because it costs a lot to borrow money.
One choice that might have been appealing two years ago is not appealing now because interest rates have gone up so much, said Kamila Elliott, a certified financial planner (CFP) and co-founder of Collective Wealth Partners. Elliott is also a member of CNBC’s Advisor Council.
Even so, experts said there might be times when it makes sense. You can choose from these.
Hepp said that a home equity line of credit, or HELOC, is the most popular way to use the value of your home as collateral.
With a HELOC, homeowners can borrow money against the value of their home, usually for a set amount of time. People who borrow money pay interest on the amount they still owe.
Bankrate says that as of June 6, the typical HELOC has an interest rate of 9.2%. In contrast to fixed-rate loans, rates are variable, which means they can change. (Homeowners can also think about getting a home equity loan, which usually has set rates.)
A 30-year fixed-rate mortgage, on the other hand, has rates of about 7%, according to Freddie Mac.
Elliott said that HELOC rates are higher than credit card rates but much lower than credit card rates. The average interest rate for people who have a credit card balance is about 23%, according to statistics from the Federal Reserve.
Bank of America says that borrowers can usually get up to 85% of their home’s value, minus any debts that are still owed.
Elliott said that homeowners can use a home equity line of credit to pay off their high-interest credit card debt. But, she said, they need a “very targeted plan” to pay off the HELOC as soon as possible, preferably in a year or two.
Source: CNBC
