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Forecasting HELOCs in 2020

home equity

Bankrate [1] says that interest rates are “unlikely to be an impediment” for home equity borrowers in 2020.

“Even if mortgage rates were to rise from the sub-4 percent levels of 2019, HELOC rates would largely hold steady if the Federal Reserve isn’t changing interest rates,” said Greg McBride, Chief Financial Analyst of Bankrate. 

Bankrate found that the average rate of HELOCs ended in 2019 at 5.98%. HELOCs started 2019 with an average rate of 6.52% and peaked at 6.79% on June 12, 2019. 

Average rates on a $30,000 home-equity loan were relatively unchanged during 2019—beginning the year at 5.88% and ending the year at 5.8%. 

Bankrate adds that variable-rate loans like HELOCs are “especially sensitive” to changes in interest rates. 

“Any additional borrowing would occur at a higher prevailing rate, but at least your existing balance can benefit from a fixed interest rate,” McBride said. 

U.S. homeowners are sitting on $6.2 trillion in untapped home equity, according to data from Black Knight. Bankrate says this could indicate that homeowners are being more cautious about borrowing home equity than before the Great Recession. 

“The overall market is prime for customers to pursue financing via a HELOC,” says Becky Crain, SVP, Consumer Real Estate Products for Regions Bank in Birmingham, Alabama. “With increasing home values, historically low interest rates, and a robust economy, consumers are in an ideal position to tap into their home’s equity for financing needs.”

The Urban Institute [2] revealed in November that outstanding HELOC debt during Q2 2019 was less than $400 billion for the first time since 2004.

HELOC debt peaked at $714 billion in 2009, and the decline of HELOC reveals “high-risk aversion” among lenders and consumer awareness. 

The U.S. housing market has a total value of $29.1 trillion—significantly higher than the market’s pre-value crisis of $24.1 trillion. 

“The low level of cash-out refinancing and HELOC debt today suggests that both banks and consumers are remembering the lessons from the past, contributing to a stable and secure housing market overall, and offering the housing market a substantial cushion in the event of a recession or an economic downturn,” the report states.