High prices in the real estate market and the larger economy are leading homeowners to look for ways to leverage their home’s equity.
An analysis of Google searches for “heloc,” a home equity line of credit, reached an all-time high, up 305 percent as of July 2023, according to a study from the real estate platform RubyHome. Searches were highest in Hawaii, Utah and Colorado.
A home equity line of credit allows owners to borrow against the equity they have built in their homes, and they can use the money to cover larger expenses, such as a new roof or car payments.
The uptick in search interest occurred amid the rate hiking cycle from the Federal Reserve that has trickled into the housing market and sent mortgage rates soaring. This is keeping potential sellers anchored to their homes instead of risking a higher mortgage rate when buying a new home.
“Homeowners that bought a few years ago, at lower prices and at lower interest rates, can feel trapped. If they’ve considered buying a new home, they’ve looked around at today’s higher home prices and also know they can never replace the historically low interest rate they have now,” RubyHome CEO Tony Mariotti said in a statement.
“Even though home equity loans carry a higher rate, a small loan for home improvement still works in their favor – the blended rate of the HELOC with their first mortgage is still below market rates for a new first mortgage,” Mariotti added.
Mortgage rates remain stubbornly high after approaching recent peak levels just weeks ago as the Federal Reserve’s broader battle with inflation drastically impacted the housing market.
The benchmark 30-year fixed rate mortgage declined slightly last week to 6.78 percent, according to Freddie Mac.
Meanwhile, increasing demand combined with a lack of inventory is pushing up home prices to near peak levels seen last summer. Median sales prices in June eclipsed $400,000 for only the third time on record, data from the National Association of Realtors showed.
And Federal Reserve Board Chairman Jerome Powell said following the central bank’s latest interest rate increase that the housing market has “a ways to go” before balancing out.
“There are many people who have low-rate mortgages and whereas they might want to sell in a normal situation, they’re not going to because they have so much value in their mortgage, which means that the supply of existing homes is really, really tight, which is keeping prices up,” Powell said.