Home equity loans will increase just 1.5% in 2023 compared with the previous year, while outstanding debt increased 8.3% during the same period, according to a study released Monday Mortgage Bankers Association (Master of Business Administration).
This information includes total originations of open-end home equity lines of credit (HELOCs) and closed-end home equity loans. Marina Walsh, MBA’s vice president of industry analysis, explained that the lower increase is due to a slowdown between applications and closings.
“Home equity issuance volumes are expected to be relatively flat in 2023 compared with 2022,” Walsh said in a statement. “Even with evidence of an easing of credit availability, as origination activity shifts to lower FICO credit scores and Higher combined loan-to-value ratios, application closing rates are still down, suggesting home equity lenders are doing more for fewer loans.”
Despite rising debt, higher levels of home equity resulting from rising home prices during and after the COVID-19 pandemic continue to illustrate the market’s potential.
“Despite tepid volume growth in 2023, our research shows an increase in outstanding home equity debt,” said Walsh. “The rising mortgage rate environment has slowed service runoff and utilization has improved. .Given the large amount of equity capital accumulated in real estate, there is still untapped potential for lenders and borrowers in home equity lending.
Total originations of open-end HELOC and closed-end home equity loans will increase to $2.13 billion per company in 2023, compared with $2.1 billion in 2022. But that proportion has dropped to 56% by 2023, according to MBA data.
The pull rate, which measures the number of applications that are eventually closed, fell to 48% in 2023 from 56% in 2022.
“When examining the ratio for the original year cohort, HELOC utilization (amount outstanding compared to maximum credit limit) improved in 2023,” the study explains. “For example, nine months after launch, 2023’s Utilization rate is 47%, compared with 45% in 2022.”
The survey will be conducted by MBA in spring 2024. As of December 31, 2023, the maximum amount of credit extended to borrowers was $184.5 billion; as of December 31, 2023, outstanding borrowings were $77.2 billion.
