U.S. home equity reached an all-time high last week, with the Federal Reserve noting it amounted to $27.8 trillion after a 20% increase in the first quarter.
The housing market has been booming for several years despite challenging many potential home buyers with prohibitive prices. It has been a boon to existing homeowners, though. Rising home values provided homeowners with more valuable assets and a potential source of credit and liquidity.
Mortgage rates have been rising in recent months, nearly doubling since November 21. Potential homebuyers in some markets are seeing rates as high as 7%, making it more difficult for them to afford a home.
However, credit instruments based on home equity have only now started to move. Cash-out refinances and home-equity lines of credit are two such examples. Interest rates on these financial products are more closely tied to the benchmark interest rate set by the U.S. Federal Reserve, which has become more hawkish in its monetary policy, per The Wall Street Journal.
On Wednesday, June 15, the Federal Reserve hiked benchmark interest rates by 0.75% to tackle rising inflation. A 0.5% jump preceded this month’s hike in May, and the Fed expects to implement another when they meet again in July.
Fed Chair Jerome Powell has stated that the Fed will remain committed to rate hikes until inflation is tamed. This may not be welcome news to anyone looking to tap their home equity.
With the Fed’s benchmark rate on the rise, home-equity financial products are becoming more expensive at a time when Americans have more equity than ever, shooting up trillions in the first quarter.
Still, property and financial analytics firm CoreLogic Inc. expects a record amount of home-improvement spending in 2022, per The Wall Street Journal.