Equity lending – Is the phoenix rising?
by. Pat Bator
When the housing bubble burst in 2006, home values expectedly began a steady decline and ultimately hit rock bottom in 2012. Accordingly, financial institutions were hesitant to market their home equity credit products because of the existing uncertainty with home values. Now with home value appreciation occurring across the country, some financial institutions are returning to the marketplace with equity credit products.
Current National Home Value Indices
(Year-over-Year Percentage Change)
Zillow Home Value Index: ↑ 6.6%
FHFA’s House Price Index: ↑7.2%
Trulia Price Monitor: ↑11.0%
CoreLogic Case-Shiller Index: ↑12.4%
In order to assist lenders in their endeavors, financial institutions should be reminded of salient market research facts related to equity credit lending:
1. Home Equity Values Vary by Region, State, County, City and even Neighborhood.
Home equity lenders well know that home values can vary significantly from market to market. Raddon’s national consumer research shows that the highest home equity values are in the East and West regions of the country. However within the nine census regions that make up the four regions (East, Midwest, South, and West), a higher percentage of homeowners in the New England census region (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont), in the South Atlantic census region (Delaware, the District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and West Virginia), and in the Mountain census region (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming) are reporting negative equity values. Negative equity, which is often referred to homeowners being “underwater” or “upside down,” can occur because of a decline in home value, an increase in mortgage debt, or a combination of both. Further, negative equity instances can vary significantly by individual state, counties within a particular state, cities within particular counties, and neighborhoods within particular cities. The point is that financial institutions must treat equity lending on a local market and an individual homeowner’s basis.
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