Why Are Americans Tapping Into Home Equity?

In a market where prospective homeowners are “locked-in” due to high mortgage rates, and affordability has handcuffed many, a new study from LendingTree examined trends in home equity, as more are staying put and tapping into the equity of their current home with a home equity loan.

The study analyzed borrowers’ home equity loan requests on the LendingTree marketplace in Q1 of 2024, and gauged the reasoning behind why many are shopping for a home equity loan from one of five reasons, including:

  • Making home improvements
  • Consolidating debt
  • Getting money for investment purposes (besides home improvements)
  • Getting extra retirement income
  • Using the money for another reason

For the report, LendingTree researchers analyzed nearly 416,000 home equity loan inquiries from users of the LendingTree online loan marketplace in the first quarter of 2024. Data was derived from users living in each of the nation’s 50 states, excluding the District of Columbia.

Are prospects improving for those seeking a move or upgrade in their living space? According to a recent analysis from Redfin, nearly two of every five (38%) homeowners don’t believe they could afford to buy their own home if they were purchasing it today. Nearly three in five (59%) homeowners who answered this question have lived in their home for at least 10 years, and another 21% have lived in their home for at least five years. That means the majority of respondents have seen housing prices in their neighborhood skyrocket since they purchased their home, as the median U.S. home-sale price has doubled in the last 10 years, and has shot up nearly 50% in the last five years alone.

Exploring the marketplace

LendingTree found that 40.58% of those seeking a home equity loan cited paying for home improvements as their primary reason for tapping into their equity. Nationwide, this was the most commonly cited reason why homeowners wanted to tap into their home equity, but was not the most popular reason cited in every state.

Of those polled, 33.78% of homeowners considered tapping their home’s equity to help with debt consolidation. Some states, including Wyoming, Idaho, and South Dakota, debt consolidation was the most commonly cited reason.

Tapping into a home’s equity for investment purposes (other than home improvements) was the foremost reason for 7.68% of homeowners. Investments cited included buying a property to rent or purchasing shares of a company via the stock market.

Just 2.56% of homeowners considered using their home’s equity as retirement income.

And, a significant percentage of homeowners, 15.39%, considered a home equity loan for a reason other than the ones listed above. Though we don’t know how these potential borrowers hoped to use a home equity loan, reasons LendingTree considered was paying for college, paying for a wedding, or dealing with emergency-related expenses.

Where is equity being tapped?

According to LendingTree, the states where the largest share of homeowners considered tapping home equity for home improvements were found in:

  • Mississippi (48.21%)
  • Maine (46.57%)
  • West Virginia (44.31%)

The states that reported largest share of homeowners that considered tapping into home equity for debt consolidation were:

  • Wyoming (44.21%)
  • Idaho (43.26%)
  • South Dakota (40.86%)

LendingTree found that the states where the largest share of homeowners considered tapping home equity for investment purposes were:

  • Utah (11.10%)
  • Alaska (10.09%)
  • Hawaii (9.78%)

States that reported the largest share of homeowners who considered tapping home equity for retirement were:

  • Nevada (3.73%)
  • Vermont (3.41%)
  • Florida (3.28%)

And states that reported the largest share of homeowners who considered tapping home equity for another reason were:

  • Hawaii (18.48%)
  • New Mexico (17.88%)
  • Alaska (17.87%)
Click here for more on LendingTree’s study of home equity habits.

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Eric C. Peck

MortgagePoint Managing Digital Editor Eric C. Peck has 25-plus years’ experience covering the mortgage industry. He graduated from the New York Institute of Technology, where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career in New York City with Videography Magazine before landing in the mortgage finance space. Peck has edited three published books, and has served as Copy Editor for Entrepreneur.com.
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