These are the top 10 housing markets that just experienced the biggest declines in home equity

These are the top 10 housing markets that just experienced the biggest declines in home equity

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Also, what to know if you are thinking of hiring a HELOC.

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As home prices have soared in recent years, homeowners have enjoyed record levels of usable home equity, which is the amount of money a homeowner can borrow while holding a 20% equity stake. But all that is changing as home prices begin to fall, and July saw the biggest drop in home prices since 2011, according to the latest Mortgage Monitor from real estate data and analytics company Black Knight. . (See here for the lowest home equity rates you may qualify for.)

In fact, while usable capital reached another record in the second quarter of the year, its growth seems to have peaked. “Although usable equity from mortgage holders had grown 25% from last year to hit another record high in the second quarter, we noted that equity actually peaked in May and followed the pullback that started in June before scale in July,” says Ben Graboske, president of Black Knight Data & Analytics. “Usable capital is now down 5% in the past two months, setting up the third quarter to likely see the first quarterly decline in shareable capital since 2019.”

In some markets, this drop in usable real estate capital is especially sharp, Black Knight data revealed. Five of the most stock-rich West Coast markets saw a 10% to 20% decline in marketable stocks from April to July. Here’s how big the declines in usable capital were in the 10 most capital-rich markets:

  • San Jose, -20%

  • Seattle, -18%

  • San Diego, -14%

  • San Francisco, -14%

  • Los Angeles, -10%

  • Washington D.C., -4%

  • Chicago, 6%

  • Dallas, 6%

  • New York, 8%

  • Miami, 8%

Meanwhile, among the 50 most capital-rich markets, here’s what happened to equity in equity:

  • San Jose, -20%

  • Seattle, -18%

  • Oxnard, Calif. -14%

  • San Francisco, -14%

  • San Diego, -14%

  • Denver, -12%

  • Sacramento, -12%

  • Holy Cross, -11%

  • Riverside, California, -11%

  • Los Angeles, -10%

One of the main reasons that usable capital has gone down is, of course, that home prices have gone down. But rising interest rates are also likely to blame for the amount of principal being withdrawn, as rising rates change how homeowners leverage their equity. Homeowners had previously taken advantage of lower rates to take out HELOCs, and home equity loans rose nearly 30% quarter over quarter, the highest volume in nearly 12 years.

What to keep in mind if you are thinking of hiring a HELOC

HELOCs tend to be a much more affordable way to borrow money than credit cards or personal loans, particularly for homeowners with significant home equity. And they can be a smart choice for borrowers looking to consolidate high-interest debt or finance home improvement projects. But it’s important to get your finances in order, your credit score as high as possible, and shop around. See the lowest home equity rates you may qualify for here.

It is also important to understand how HELOCs work. They are made up of a two-part structure, typically a 10-year withdrawal period and a 20-year repayment period, which together equal a 30-year term. During the draw period, borrowers can withdraw as much money as they want. But once the repayment period begins, money can no longer be withdrawn and the borrower begins to pay principal in addition to interest.

Because HELOCs are based on the amount of equity someone has in their home, the amount of money a borrower qualifies for will vary. Remember that HELOCS tend to have variable rates, which can start low but could increase if rates go up. And because you’re using your home as collateral for a loan like this, you risk losing your home if you can’t make your scheduled payments.

Any advice, recommendations, or ratings expressed in this article are from MarketWatch Picks and have not been reviewed or endorsed by our trading partners.

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