$32,756.23 billion—that’s the staggering total value of America's collective home equity, according to recent data from the Federal Reserve Bank of St. Louis. This figure marks a record high, having doubled since early 2017 and quadrupled since early 2012. For homeowners in Nashville and beyond, this growth highlights the immense value of owning a home and its role in building generational wealth.
For those who bought homes during the economic recovery from the Great Recession, the rise in home equity has driven substantial growth in household wealth. Jessica Lautz, vice president of research at the National Association of Realtors, notes that these homeowners have truly been the winners in the current economy. Their wealth has increased significantly, allowing for more financial stability and opportunities.
However, this boom in home equity presents challenges for aspiring homeowners. Since early 2020, home values have surged, and the average interest rate for a 30-year fixed mortgage has more than doubled from a historic low of 2.68% in December 2020. This makes the dream of homeownership increasingly out of reach for many Nashvillians.
Current homeowners looking to refinance face their own challenges. The rising home prices and interest rates have made it difficult to tap into the equity they’ve accumulated, leaving many with fewer options to access their newfound wealth. However, solutions like home equity loans and home equity lines of credit (HELOCs) provide viable alternatives.
A home equity loan allows homeowners to borrow against the equity in their homes. The loan amount is based on the difference between the home’s current market value and the mortgage balance due. Home equity loans are typically fixed-rate, providing a single lump-sum payment that is repaid over a set period, usually five to 15 years, with an agreed-upon interest rate.
Alternatively, a HELOC is a revolving line of credit that you can draw on as needed during a draw period, typically five to 10 years, followed by a repayment period of 10 to 20 years. HELOCs generally have variable interest rates. This flexibility makes HELOCs a valuable tool for homeowners who prefer to access their equity as needed.
Home equity loans and HELOCs can provide an easy source of cash and are valuable for responsible borrowers. They offer lower interest rates compared to credit cards and other consumer loans, making them a sensible choice for large expenses such as home renovations, higher education, or debt consolidation.
For Nashville homeowners, the surge in home equity offers both opportunities and challenges. By understanding the options available and the potential risks, you can make informed decisions to leverage your home equity effectively and avoid falling into a debt trap.
