Home Values Are Slipping, But Homeowners Still Have Plenty of Equity to Borrow Against

An image of two people doing a home improvement project is used to illustrate an article about home equity. Credit: Getty Images
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Key Takeaways

  • Home equity loan and line of credit rates remained essentially unchanged last week.
  • Rates tend to move most significantly in the wake of rate hikes by the Federal Reserve. The Fed is expected to do so next later this month.
  • Although the number is still large, falling home prices mean homebuyers have less equity in their homes to tap into than before.

The recent slowdown and decline in home prices means homeowners may find themselves with a little less equity than they had a couple of months ago – although still more than enough to drive continued demand for home equity loans and lines of credit (HELOCs).

Tappable equity – the amount a homeowner could borrow against and still keep a 20% equity stake – was a record in the second quarter of the year but peaked in May, dropping 5% in June and July, according to the mortgage technology and data firm Black Knight.

In some big West Coast markets, where prices were much higher, tappable equity declined even more.

The culprit is a month-to-month drop in home prices as slower demand – caused by higher mortgage rates pushing buyers out of the market – starts to bring prices down. Home prices are still up 14% year-over-year, but they’re dropping from May’s highs. “Without timely, granular data, market-moving trends don’t become apparent until they’re right in front of you – like a sudden shift to the largest single-month decline in home prices in more than a decade,” Ben Graboske, president of data and analytics for Black Knight, said in a statement.

The good news is that high home values mean the market is in a good place to deal with falling prices without causing problems like those seen during the financial crisis of the late 2000s. Black Knight said if every home saw a 5% drop in value, fewer than 1% would be underwater – meaning the total value of loans secured against home equity exceeded the value – with the vast majority being those bought in the past few months. 

Homeowners have increasingly turned to home equity loans instead of cash-out refinances, Black Knight reported. Home equity lending was up nearly 30% quarter-over-quarter, while cash-out refis dropped by 30% as mortgage rates surged. 

Here are the average home equity loan and HELOC rates as of Sept. 7, 2022: 

Loan TypeThis Week’s RateLast Week’s RateDifference
$30,000 HELOC6.51%6.53%– 0.02
10-year, $30,000 home equity loan7.06%7.05%+ 0.01
15-year, $30,000 home equity loan7.01%6.99%+ 0.02

How These Rates Are Calculated

These rates come from a survey conducted by Bankrate, which like NextAdvisor is owned by Red Ventures. The averages are determined from a survey of the top 10 banks in the top 10 U.S. markets.

What’s the Difference Between Home Equity Loans and HELOCs?

Home equity loans and HELOCs are loan products in which you use the value of your home beyond what you owe on mortgages and other home loans as collateral. There are some differences between them:

Home equity loans involve borrowing a lump sum of cash and paying it back in installments, typically at a fixed interest rate. 

HELOCs are more like credit cards. You have a limit of how much you can borrow at once and you pay interest only on what you borrow. The rate tends to be variable, often based on a benchmark like the prime rate.

Experts expect interest rates for home equity loans and HELOCs to rise through the remainder of 2022. The prime rate, which is the benchmark for many HELOCs, often tracks increases in short-term interest rates by the Federal Reserve. The Fed has so far raised its rate four times, most recently at the end of July, and is expected to keep doing so through the end of the year, including later this month. For home equity loans, rates are also likely to keep climbing as banks’ borrowing costs rise. 

Home Equity Loans Can Be Risky

Home equity loans and HELOCs are secured against your home. That means if you don’t pay them back, the bank can put you into foreclosure. Note that just because the value of your house has increased doesn’t mean it will stay there forever. Real estate values are starting to fall a little bit. Your local market might even see prices fall while national averages increase. 

Don’t use a home equity loan or HELOC for just anything. They tend to be used for home renovations, which can come with a big price tag but can simultaneously increase the value of your home. Experts warn against using them to finance a more expensive lifestyle or for debt consolidation. 

“I wouldn’t necessarily recommend turning unsecured debt or credit card debt into secured debt,” Leslie Tayne, founder and head attorney at Tayne Law Group, told us. “You wouldn’t lose your home over credit card debt, but you might lose your home if you default on a HELOC.”

Pro Tip

Experts advise against using a home equity loan for debt consolidation. Turning high-interest unsecured debt, like credit card debt, into debt secured by your home could be risky if you still struggle to pay it all off.