Are Americans Using Their Homes Like ATMs Again?
Using homes as ATMs was one of the more unfortunate displays by Americans during the housing bubble. In an environment filled with predatory banking practices and relentless price appreciation, many homeowners used their newfound equity to fund luxurious spending habits. The financial crisis reversed this trend, but are the same mistakes being made?
Home equity lines of credit (HELOCs) are regaining popularity across the country. According to a new report from RealtyTrac, 797,865 HELOCs were originated in the 12 months ending in June 2014, up 20.6% from a year earlier. That is highest level since the 12 months ending in June 2009. In fact, HELOC originations accounted for 15.4% of all loan originations in the United States during the first eight months of 2014, the highest percentage since 2008.
Among the nation’s 50 largest metro areas with HELOC data available, all but one posted a year-over-year increase: Rochester, New York, where HELOC originations decreased 1%. Riverside-San Bernardino, California, posted the biggest gain (88%), followed by Las Vegas, Nevada (85%); Cincinnati, Ohio (81%); Sacramento, California (65%); and Phoenix, Arizona (60%).
Metro areas with the highest share of HELOC originations as a percentage of all loan originations year-to-date in 2014 were Honolulu, Hawaii (43.5%); Rochester, New York (38.7%); Buffalo, New York (32.1%); Cleveland, Ohio (28.5%); and Milwaukee, Wisconsin (27.5%).
Despite the strong year-over-year growth, HELOC originations were well below their peaks from the housing bubble. Nationwide, the 797,865 HELOC originations in the 12 months ending in June 2014 are 76% below the previous peak of 3,299,007 in the 12 months ending in June 2006. Meanwhile, the 15.4% share of HELOCs year-to-date nationwide is below the 24.7% share experienced in 2005.
Pittsburg was the only metro area in the nation where HELCO originations reached a new peak in the 12 months ending in June 2014. Major metro areas with the biggest decrease in HELOC originations in 2014 compared to their previous peaks were Riverside-San Bernardino, California (down 93%); Las Vegas, Nevada (down 92.9%); and Miami (down 92.5%).
A HELOC can be a useful tool to homeowners seeking access to equity for a onetime expense, but when abused by using it to fund an otherwise unaffordable lifestyle, it can create financial repercussions that last for years. The market isn’t back to its bubble days yet, but it will be interesting to see how the current trend develops over the coming years.
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