American Homeowners Are House Rich
By the end of the third quarter of this year, borrowers collectively had a record $9.4 trillion in available home equity. The average homeowner in America, according to Black Knight, has an average of $178,000 available to them in home equity.
The reason we’re seeing a record-high amount of equity can point to one thing, and you probably guessed it – the pandemic. The Covid-19 pandemic cause demand to far outreach supply, driving up the national average cost of a home by 20% from a year ago. This high demand but low supply equated a steep increase in home equity – a 32% increase year-over-year, to be exact.
So, what could you with the sudden increase in equity? This might be a great time to take cash out of the home to invest in something else with a higher return, i.e. an investment home. As always, though, borrowers should look at the potential risks and returns on that investment and weigh the cost to benefit analysis to the extra cost of debt.
Matthew Weaver, vice president at CrossCountry Mortgage, recommends a line of credit when the financial need is short term and there is a defined plan in place to pay it off over the next 24 to 36 months. He states that the advantage of a HELOC is that it’s flexible with low upfront costs, however, the disadvantage is that most carry a variable interest rate that will change and likely increase over time.
All in all, if you’re looking to expand your real estate portfolio, 2022 might be the prime time to borrow against other properties in your portfolio to expand your overall real estate income. This may create additional costs in the short term, but the long-term benefits of expanding your California real estate portfolio by building on the equity of your current homes might prove to be a great business decision.