Home equity revolving lines of credit have hit a three-year high, indicating that there is some confidence returning to the real estate market. These lines of credit had taken a major hit over the course of recession, as many homeowners watched their home values plummet. Already underwater in their mortgages or nervous that they would lose more value in their homes and would have little equity against which to borrow, fewer homeowners were able to open home equity lines of credit, and originations dropped off as the recession took hold.
Home equity revolving lines of credit work in a similar manner to credit cards. Lenders set a credit limit, and homeowners can borrow what they want when they want it—but they are borrowing against the equity available in their home. As homeowners repay the loan, they replenish the amount of cash available in the line of credit.
The number of new revolving home equity lines of credit opened between January 2012 and July 2012—the most recent date this data was available—stood at 495,000, a three-year high. However, that number is more than 76 percent lower than the seven-year high of more than two million new lines of credit opened between January 2006 and July 2006. And after peaking at $680 billion in May 2009, these credit lines fell 20 percent to a total of $553 billion in July 2012.
“Increasing new home equity revolving credit indicates homeowner confidence and momentum towards an improved market,” said Craig Crabtree, senior vice president and general manager of Equifax Mortgage Services. “While the levels are significantly lower when compared to pre-recession peaks, the recent stability has given way to consistent growth. Total first mortgages are still contracting; however, the decreasing debt and delinquencies are positive signs of a stable foundation towards recovery.”
Since mid-year 2007, usage of these lines of credit has increased for those who already had them available. In 2007, homeowners were using a little less than 48 percent of their available credit, which has since increased to around 55 percent in 2012—nearly a $200 billion difference.
But even that number has been declining since its peak in early 2011, meaning that homeowners have begun to pay off some of the credit they owe, releasing some of their available credit. That’s a good thing for pinched homeowners, as credit availability is one of the factors involved in calculating a credit score.
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