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According to Freddie Mac data, the average 30-year fixed-rate mortgage (FRM) has reached its highest level in 21 years. A new CoreLogic release revealed the increase will not only further erode U.S. home affordability but also discourage homeowners from tapping loans against their accrued equity.
While home equity lines of credit (HELOCs) and home equity loans gained popularity as owners leveraged accumulated equity in 2022, the appeal has dampened in 2023. Demand for HELOCs is typically linked to current interest rates, which have been steadily rising over the past few years.
Despite interest rate hikes, HELOC activity surged in 2022. Escalating mortgage rates compared with those seen in 2021 significantly curtailed refinancing opportunities and resulted in an uptick in HELOC activity.
The HELOC landscape has changed dramatically so far in 2023, as the elevated interest rates of the past six months discourage homeowners from pursuing such loans. Additionally, the average rates on 30-year, FRMs surged by nearly 2 percentage points during the first half of 2023, averaging 6.44% compared with the same period in 2022.
Annual U.S. HELOC Numbers Drop Substantially in the First Half of 2023
HELOC activity peaked in 2022, marking the highest level since the first half of 2007, but this number dropped in the first half of 2023. During that time, lenders initiated over 645,000 new HELOCs, amounting to almost $98 billion. Despite a decrease of 26% in HELOC counts and a 32% reduction in amounts on a year-over-year basis in 2023, it’s worth noting that the HELOC market is keeping pace with its pre-pandemic level.
HELOC Trends by State: California, Florida, and North Carolina Lead in 2023
Figure 2 shows a comparative analysis of approved HELOC amounts (by billions) during the first half of 2023 and the corresponding period in 2022 across 15 U.S. states.
In 2023, all tracked states have seen HELOC activity decrease compared with 2022. Notably, California posted the highest approved HELOC amount, surpassing $9 billion so far in 2023. That number is currently down from the $15 billion in HELOC loans that the Golden State recorded in 2022 but still accounts for around 10% of the nation’s overall activity.
Florida followed closely, with $7 billion in HELOC loans, while North Carolina ranked No. 3 at $4.2 billion. It’s worth noting that the states that saw the most significant HELOC activity declines were those where home prices have either recently remained flat or dropped, including Utah, Idaho, Hawaii, and Montana.
Given prolonged high home prices, some owners will likely continue to tap accrued equity if necessary. On the other hand, current high interest rates may cause some potential HELOC borrowers to rethink that decision. Experts predict that if mortgage rates start to fall, demand for HELOCs will likely pick up again.
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