These are the top 10 housing markets that just saw the biggest drop in equity capital

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Plus, what you need to know if you’re considering taking out a HELOC.

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As home prices soared in recent years, homeowners have enjoyed record levels of tapping equity, the amount at which a homeowner can borrow while retaining a 20% equity stake. But that’s all changing as home prices begin to fall, with July seeing the biggest drop in home prices since 2011, according to the most recent Mortgage Monitor from real estate data and analytics firm Black Knight. (Check out the lowest equity rates you may qualify for here.)

Although captive equity reached an all-time high again in the second quarter of the year, its growth appears to have peaked. “While drawdown mortgage holders’ equity was up 25% year-on-year and hit a new record high in the second quarter, we noted that equity peaked in May, following the slump that started in June before moving into July escalated,” said Ben Graboske, president of Black Knight Data & Analytics. “Tackable equity has fallen 5% in the past two months, with the third quarter likely to see the first quarterly decline in captive equity since 2019.”

In some markets, this drop in captive equity is particularly acute, Black Knight data shows. Five of the West Coast’s most equity-rich markets saw wiretapping stocks fall 10% to 20% from April to July. Here’s how big the tapping stock declines were in the 10 most equity-rich markets:

  • San Jose, -20%

  • Seattle, -18%

  • San Diego, -14%

  • San Francisco, -14%

  • Los Angeles, -10%

  • Washington DC, -4%

  • Chicago, 6%

  • Dallas, 6%

  • New York, 8%

  • Miami, 8%

Meanwhile, in one of the 50 most equity-rich markets, here’s what happened to wired equity:

  • San Jose, -20%

  • Seattle, -18%

  • Oxnard, California -14%

  • San Francisco, -14%

  • San Diego, -14%

  • Denver, -12%

  • Sacramento, -12%

  • Santa Cruz, -11%

  • Riverside, California, -11%

  • Los Angeles, -10%

An important reason why tapping equity is falling is, of course, that house prices have fallen. But it’s also likely that rising interest rates are responsible for how much equity is withdrawn, as rising interest rates change how homeowners use their equity. Homeowners had previously benefited from lower rates to take out HELOCs, and equity lending grew nearly 30% quarter over quarter, the largest volume in nearly 12 years.

What to look for when considering a HELOC . to close

HELOCs are generally a much cheaper way to borrow money than credit cards or personal loans, especially for homeowners with significant equity. And they can be a smart option for borrowers looking to consolidate high-yield debt or finance home improvement projects. But it’s important to get your finances in order, get your credit score as high as possible, and shop around for rates. View the lowest equity rates for which you may be eligible here.

It is also important to understand how HELOCs work. They are composed of a two-part structure, usually a 10-year draw period and a 20-year redemption period, which together equal a 30-year term. During the draw period, borrowers can withdraw as much or as little money as they want. But once the repayment term starts, no more money can be withdrawn and the borrower starts to pay back the principal in addition to the interest.

Because HELOCs are based on the amount of equity a person has in their home, the amount of money a borrower qualifies for will vary. Remember, HELOCS generally has variable rates, which can start low but can rise as rates rise. And because you use your home as collateral to take out such a loan, you risk losing your home if you can’t make your scheduled payments.

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