Money Research Collective’s editorial team solely created this content. Opinions are their own, but compensation and in-depth research determine where and how companies may appear. Many featured companies advertise with us. How we make money.
California Has $3.5 Trillion in Tappable Equity, but May Have Hit a Peak
By Martha C. White MONEY RESEARCH COLLECTIVE
The red-hot housing market of the past couple of years has delivered big benefits for homeowners in California — to the tune of at least $3.5 billion in equity. But that figure may already be edging down, recent data suggests.
Real estate data firm Black Knight found that the record pace of home price appreciation over the past couple of years has made many Americans equity-rich — creating a bounty that can be tapped through a loan or home equity line of credit (HELOC), among other options. The amount of home equity held collectively by American homeowners hit an all-time high — last year it actually hit multiple record highs.
Homeowners can’t leverage the entire equity in their homes; lender regulations typically require that at least 20% of it be retained. But the remaining “tappable equity” is still significant. It amounts to $11.5 trillion overall, and an average of $216,900 for each American homeowner at the end of June 2022, according to Black Knight.
But the boom appears to be abating, especially in places where equity is the greatest. That includes California, which has a full third of the home equity in the nation.
A perennial shortage of homes, combined with the COVID-19-related surge in demand, has driven up home values in California to a greater extent than in most other parts of the country. Yet Black Knight finds that areas of the country with the highest housing prices, including many parts of California, might be hitting a peak in terms of equity appreciation.
California saw a decline of tappable equity of some $155 billion in the second quarter. Granted, that drop comprises a mere 4% of homeowners’ tappable equity in the state. But it’s a shift in the market of which homeowners should be aware, experts say.
Should you take advantage of your tappable home equity?
The rapid increase in real estate prices gives owners a greater amount of tappable equity, but as the economic winds shift, people who want to take advantage of their home’s increased value might consider doing so sooner rather than waiting.
Michael Popp, senior vice president of SAFE Credit Union in Folsom, California, says homeowners benefit when they know what their home’s tappable equity is, particularly if they intend to take out a second mortgage or other debt using their home’s value as collateral.
“It’s important to start with the value of homeownership. Outside of the obvious, which is putting a roof over your head, owning a home creates future wealth, especially for Californians” in the wake of the enormous increase in property values, he says.
If you choose to tap your home’s equity, make sure to do so with purpose. Some smart ways to use home equity include using it for home upgrades or projects that increase your house’s value, debt consolidation or for financial emergencies.
