Bay Area: Homeowners Extract Equity to Spend

Latest Increase May Signal Rising Trend

There’s a flipside to the housing affordability “crisis” in communities across California: rising values in the Bay Area (nine counties) are giving many homeowners a reason to tap into their equity and spend money, according to local data released today by the California Credit Union League.

Some credit unions based in the Bay Area (nine counties) are experiencing this trend firsthand as homeowners were increasingly heading into Home Equity Lines of Credit (HELOCs), home equity loans (second mortgages), and cash-out refinance mortgages in second-quarter 2016 compared to the same period a year ago (and prior years before).

These products oftentimes require a certain amount of home equity, which has increased substantially as many existing and relatively-new owners continued paying down their mortgages while real estate prices skyrocketed from 2012-2016.

Nearly 857,000 homes with mortgages in the San Francisco-Oakland-Hayward metropolitan statistical area—or 83 percent of approximately 1.03 million mortgages—had at least 20 percent equity as of June 2016, according to data supplied by RealtyTrac. (There are more than 1.7 million local residential properties in total)

Meanwhile, data reported by 71 credit unions in the Bay Area (nine counties) for second-quarter 2016 compared to the year-ago period follows this recent home-equity trend and offers additional insight into the latest homeowner and consumer choices in spending and banking:

  • Originations (incoming pipeline) for the combined category of Home Equity Lines of Credit (HELOCs)/home equity loans (second-mortgages) increased 14 percent to $907 million.
    • Altogether, HELOCs and home equity loans (second-mortgages) outstanding increased 11 percent to $3.9 billion, hitting a record dollar amount (and rising 41 percent from a post-recession low of $2.7 billion in 2013)
  • Originations (incoming pipeline) for first-mortgages decreased 3 percent to $2.3 billion.
    • First-mortgages outstanding—which includes cash-out refinances as a subset—increased 16 percent to $19.1 billion, hitting a record dollar amount (and more than doubling since 2010, rising 102 percent from $9.4 billion)
  • Meanwhile, local credit union membership rose 5 percent to a record 2.5 million individuals (71 credit unions). Total lending increased 16 percent, hitting a record $33 billion loaned-out. And total deposits increased 10 percent, hitting a record $42 billion.

“The local surge in home-equity lending and cash-out refis reflects a strong national trend in homeowners increasingly remodeling their homes and enhancing their properties,” said Dwight Johnston, chief economist for the California Credit Union League.

He said many neighborhoods across the Bay Area (nine counties) have enjoyed rapid price appreciation, but some select areas still have a percentage of homes that are underwater or have little equity.

“As more of these homeowners see the light of day with values rising, we’ll see more of this remodeling trend,” Johnston said. “Pulling out home equity seems to have legs and is here to stay, especially since job growth across California remains strong and is supporting household stability.”

You can view the entire Bay Area report (nine counties) for local trends on first-mortgages, second-mortgages, HELOCs, business loans, new and used auto loans, credit cards, deposit accounts (checking/savings and other), and operational/employee data.

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