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

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

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As home prices have soared in recent years, homeowners have enjoyed record levels of callable equity, which is the amount of money a homeowner can borrow against while maintaining a 20% equity stake. But that’s all changing as house prices start to fall, with July marking the biggest fall in house prices since 2011, according to property data and analytics firm Black Knight’s latest Mortgage Monitor. (See the lowest home equity rates you can qualify for here.)

Indeed, while exploitable stocks hit another record high in the second quarter of the year, their growth appears to have peaked. “While mortgage equity leverage was up 25% from last year to set another record high in the second quarter, we saw that equity actually peaked in May and watched the pullback begin in June before escalating in July,” says Ben Graboske, president. of Black Knight Data & Analytics. “Usable equity is now down 5% over the past two months, setting up the third quarter to likely see the first quarterly drop in usable equity since 2019.”

In some markets, this decline in tapable home equity is particularly sharp, Black Knight data revealed. Five of the West Coast’s stock-richest markets saw usable stocks drop 10% to 20% from April to July. Here’s how big the declines in usable stocks were in the 10 most stock-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, among the 50 most equity-rich markets, here’s what happened to equity capitalization:

  • San Jose, -20%

  • Seattle, -18%

  • Oxnard, CA -14%

  • San Francisco, -14%

  • San Diego, -14%

  • Denver, -12%

  • Sacramento, -12%

  • Santa Cruz, -11%

  • Riverside, California, -11%

  • Los Angeles, -10%

A big reason why equity appreciation is falling is, of course, that house prices are falling. But it’s also possible that rising interest rates are responsible for the amount of equity being withdrawn, as rising interest rates change how homeowners leverage their equity. Homeowners had previously taken advantage of lower interest rates to take out HELOCs, and home equity lending rose nearly 30% in a quarter, the most in nearly 12 years.

What to Consider If You’re Thinking About Taking Out a HELOC

HELOCs tend to be a much more affordable way to borrow money than credit cards or personal loans, especially for homeowners with significant equity in their homes. And they can be a smart choice for borrowers looking to consolidate high-interest 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 prices. See the lowest home equity rates you can qualify for here.

It’s also important to understand how HELOCs work. They consist of a two-part structure, which is usually a 10-year draw period and a 20-year repayment period, which together equals a 30-year term. During the draw period, borrowers can withdraw as much or as little money as they want. But once the repayment period begins, the money can no longer be withdrawn and the borrower starts repaying the principal plus interest.

Because HELOCs are based on the amount of equity someone has in their home, the amount of money a borrower qualifies for will vary. Remember that HELOCS tend to have variable interest rates, which may start out low but could increase if interest rates rise. And because you’re using your home as collateral to get a loan like this, you risk losing your home if you can’t make your scheduled payments.

Any advice, recommendations or rankings expressed in this article are those of MarketWatch Picks and have not been reviewed or endorsed by our trading partners.

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