These are the top 10 housing markets that have just seen the largest declines in home equity

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Plus, what you need to know if you’re considering getting a HELOC.

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As home prices have skyrocketed in recent years, homeowners have enjoyed record levels of home equity, which is the amount of money a homeowner can borrow while still retaining an equity stake. by 20%. But that’s all changing as house prices start to fall, with July seeing the biggest drop in house prices since 2011, according to the most recent Mortgage Monitor from real estate data and analytics firm Black Knight. . (See the lowest rates you could qualify for here.)

Indeed, while usable equity reached a new record high in the second quarter of the year, its growth appears to have peaked. “While mortgageholders’ workable equity increased 25% from a year ago to a new high in the second quarter, we noted that equity reached a peak in May and followed the decline which had started in June before intensifying in July,” said Ben Graboske, chairman. from Black Knight Data & Analytics. “Workable capital is now down 5% over the past two months, setting up the third quarter to likely see the first quarterly decline in workable capital since 2019.”

In some markets, this decline in exploitable home equity is particularly acute, data from Black Knight showed. Five of the most stock-heavy West Coast markets saw their stocks drop 10% to 20% from April to July. Here is the magnitude of the decline in exploitable stocks in the 10 most stock-rich markets:

  • San Jose, -20%

  • Seattle, -18%

  • San Diego, -14%

  • San Francisco, -14%

  • LA, -10%

  • Washington D.C., -4%

  • Chicago, 6%

  • Dallas, 6%

  • New York, 8%

  • Miami, 8%

Meanwhile, among the 50 richest stock markets, here’s what happened with the net worth of exploitable property:

  • San Jose, -20%

  • Seattle, -18%

  • Oxnard, California -14%

  • San Francisco, -14%

  • San Diego, -14%

  • Denver, -12%

  • Sacramento, -12%

  • Santa Cruz, -11%

  • Riverside, CA, -11%

  • LA, -10%

One of the main reasons that workable equity is down is, of course, that house prices are down. But it’s also likely that rising interest rates are driving the amount of equity taken out, because rising rates change how owners use their capital. Homeowners had previously taken advantage of lower rates to take out HELOCs, and home equity loans rose nearly 30% quarter over quarter, the largest volume in nearly 12 years.

What to consider if you are considering taking out a HELOC

HELOCs tend to be a much more affordable way to borrow money than credit cards or personal loans, especially for homeowners with significant equity in their home. And they can be a smart option for borrowers looking to consolidate high-interest debt or finance home improvement projects. But it’s important to get your finances in order, have as high a credit score as possible, and shop around for rates. See the lowest rates you could qualify for here.

It is also important to understand how HELOCs work. They are made up of a two-part structure, which is usually a 10-year drawdown period and a 20-year repayment period, which together equal a 30-year term. During the draw period, borrowers can withdraw as much or as little money as they wish. But once the repayment period begins, the money cannot be withdrawn and the borrower begins to repay the principal in addition to the interest.

Since HELOCs are based on the amount of equity a person has in their home, the amount of money a borrower is eligible for varies. Remember that HELOCS tend to have variable rates, which may start low but could rise if rates rise. And because you’re using your home as collateral to take out a loan like this, you risk losing your home if you’re unable to make your scheduled payments.

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