Headlines are full of warnings about the housing market cooling, but homeowners are not necessarily heading for a world of pain this market correction. According to Black Knight, U.S. homeowners with mortgages currently hold about $6 trillion in “tappable” home equity. Tappable equity is the most money a homeowner could cash out on their mortgage without dipping below 20 percent equity in their properties. Note this figure does not include homes owned free and clear or homes financed using unconventional vehicles.
In the first half of 2018, borrowers nationwide gained $636 billion, creating a total three times the size of the entire housing market at the bottom of the last crash in 2012. Furthermore, that volume is 21 percent higher than the 2006 pre-crisis peak. Black Knight estimated on average, homeowners with mortgages could access about $138,000 via a home equity line of credit (HELOC). But, those homeowners are withdrawing just over one percent of the equity available in the market. This is the lowest share of HELOC usage since 2014.
HELOCs and Investment Financing
It is not a new strategy for homeowners to use their home equity to finance other property purchases. But, in the wake of the financial crisis, many banks actively discourage such borrowing. As lending requirements ease, however, more Americans may begin using their home equity to finance other real estate purchases. This especially applies to retirement properties abroad, according to Executive Editor of International Living Jennifer Stevens. More homeowners may also take advantage of regional market corrections and use their home equity to buy investment properties.
Some investors are already engaged in this practice. One Las Vegas investor told Bankrate she used her home equity to purchase properties in San Diego and Las Vegas near the nadir of the last housing crash. She noted this enabled her to leverage the equity still in her home during retirement and create income without having to sell the property completely.