December 12, 2022
The mortgage industry has been coming down from the highs of summer, 2022. Fed actions to raise interest rates had an effect on the housing market (indirectly–the Fed sets the rates on federal loan funds, not mortgage loan interest rates) and as a result, conditions have started to cool to the point where mortgage rates actually dropped in December.
Slowing Demand
As the housing market cools, a course correction for home equity is an important factor to think about.
According to certain mortgage industry sources, there are plenty of indicators that home equity is indeed starting to come back down. Lower demand and lower prices can translate into lower equity.
Consider what the publication Mortgage Industry News printed about a report by CoreLogic in 2022:
By the end of the third quarter, mortgage borrowers had gained an average of “$34,300 in home equity” compared to the previous year”, but that equity growth, “was smaller than the increases recorded during the hot summer housing market” according to the Mortgage Industry News report about the CoreLogic numbers.
In that same third quarter, a number of homes went “underwater” due to “weakening demand” and lower sales prices.
This Year’s Gains, Last Year’s Gains
It is true that there were some gains even in the slowing housing market. But to understand them, we have to compare this year’s gains to those from previous years.
Comparing them shows that prices, demand, and equity are beginning to look more familiar compared to increases we saw during the hottest days of the 2022 mortgage market.
What’s Next?
As conditions begin to cool in the U.S. housing market, some borrowers may decide it’s a bad idea to try for a home equity line of credit or similar loan options.
This may be especially relevant for those considering a home equity loan so they can pay for renovations or upgrades to their house, and there are plenty of alternatives to home equity loans to make that happen.
An FHA 203(k) Rehabilitation Loan is a way to pay for renovations and get a similar result (an upgraded home) but without the need for a home equity loan or home equity line of credit.
If you were thinking about trying to tap into your home’s equity but now wonder about alternative options, ask a participating FHA lender which loans might be worth a look instead.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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