More American homeowners will be able to use their properties as cash machines again after real estate equity jumped last year by the most in 65 years.
Property owners recaptured $1.6 trillion as home values climbed to the highest levels since 2007. The amount by which the value of the houses exceeds their underlying mortgages rose to $8.2 trillion last year, a gain of 25 percent, according to Federal Reserve data.
An expanding group of homeowners is able to get cash from their properties as banks show more willingness to make home equity loans with the market’s recovery. Originations for so- called junior, or second, mortgages should rise 10 percent to almost $83 billion this year, from about $75 billion in 2012, said Shaun Richardson, a vice president at Icon Advisory Group, a mortgage analytics firm in Greensboro, North Carolina. About 6 percent of lenders eased equity-mortgage standards at the end of 2012, the most in 18 months, according to the Fed.
“Lenders are starting to come back into the marketplace,” said Greg McBride, a senior financial analyst at Bankrate Inc. “We’re not going back to the wild, Wild West we saw during the real estate boom, but we are going to see more people spending their equity.”
Americans went on a spending spree in the five years before the 2006 peak of the real estate market, tapping about $800 billion of their rising equity to spend on everything from cars and televisions to debt consolidation and college tuition.
“Owners who have been sitting in their homes and watching their equity go up will be more likely to borrow and to spend, and more likely to take risks like looking for another house,” said Craig Focardi, senior research director at CEB TowerGroup. “Having home equity is a financial cushion to the average consumer’s personal balance sheet.”