Home prices are rising across the nation not due to wage increases, but because of the limited supply of homes for sale.
While experts agree this type of increase is unsustainable, for now, homeowners are capitalizing on their newfound equity.
Home equity lines of credit is up 21% in the past two years, and hit the highest level since 2008, data from Moody’s Investors Service, a bond credit rating company, showed, according to an article by Diana Olick for CNBC.
Since the housing crash, homeowners have been extremely conservative with their home equity, according to the article. And even now, the rising number of HELOCs is siginificantly lower than housing boom levels.
From the article:
"The more second liens that people take out, it adds a risk that comes from the rising home prices. The fact that people are leveraging their homes more than before makes things more risky," said Peter McNally, senior analyst at Moody's.
The article also points out that the rise of lower down payments is creating riskier loans. Before the housing boom years, a typical down payment hovered near 7%, dropping to 3% during the height of the boom.
In a recent report, ATTOM Data Solutions pointed out the drop in down payments during 2016.
“For the year, the median down payment for loans secured by single family homes and condos was 6% of the median sales price nationwide, the lowest down payment percentage since 2012, but still close to twice the 3.3% in 2006 during the last housing boom,” ATTOM Senior Vice President Daren Blomquist said.
But despite all of this, CNBC’s article points out that lending is still much safer than it was in 2006, even for HELOCs.
From the article:
Homeowners are clearly leaning toward more leverage, but they are doing so in a far different environment than in 2006. Mortgage underwriting is far stricter, especially for home equity loans, and borrowers must prove their ability to repay loans, including all financial documentation. Home equity continues to rise steadily, according to the Federal Reserve Board, and it is still rising faster than borrowers are withdrawing it.