Home Equity Lines of Credit: A Growing Financial Tool in 2023

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Total HELOC Balances Increased 6.6% in 2023

One thing that continues to work on behalf of many homeowners is the equity in their home. Residential real estate has appreciated by $15 trillion, to more than $58 trillion, since 2020, according to the Federal Reserve. Meanwhile, homeowners steadily paying down their mortgages have been accumulating equity even faster than in previous years.

Many homeowners could use the win, as the cost of other goods and services continues to fluctuate and bigger-ticket items, like new cars, insurance premiums and renovation costs, are climbing nearly as fast as home prices.

As home values increase, more homeowners are leveraging some of that newly won wealth in the form of home equity lines of credit, or HELOCs. By borrowing some of the value of a home, homeowners are able to make home improvements or consolidate, pay down or pay off higher-interest debts. In 2023, the average HELOC balance grew 2.7% to $42,139, and more than $20 billion was added to the total HELOC debt across all U.S. consumers.

As part of our continuing coverage of consumer credit and debt, we looked at anonymized Experian credit data to observe recent trends in the home financing market, including HELOCs.

HELOC Credit Limits Are up in 2023

The average credit limit for HELOCs in 2023 was $117,598, which is 1.7% higher than 2022’s average limit of $115,650. Based on the 2023 average HELOC balance of $42,139, homeowners with HELOC balances are collectively using about 36% of their lines of credit.

Comparing states with higher and lower HELOC credit limits, we can see that limits are more than twice as high in California and Hawaii than lower-limit states like Indiana and West Virginia. This more or less mirrors the average home price differences among the states.

Younger Homeowners More Likely to Be Tapping Home Equity

At first glance, the table below couldn’t be more clear about which generations have been tapping home equity more. Homeowners born in 1965 or later have higher average balances than baby boomers or the Silent Generation, whose balances are lower than they were in 2022.

While household makeup explains much of the disparity in balances—younger homeowners who are building a family and updating their home to accommodate it versus older empty-nesters—there are other considerations. Reverse mortgages, for instance, are an alternative to HELOCs and other types of mortgage-based loans, but are only available to homeowners ages 62 or older who have paid off most or all of their mortgage.

According to Susan Allen, senior vice president of mortgage at Experian, HELOC usage is up in the past year among recent borrowers.

“We are seeing HELOC line utilization, the amount drawn against the open line, increasing over the last 12 months,” Allen says. “Interestingly, 80% of consumers who originated their HELOC in the last two years have drawn on their lines, compared with only 62% of consumers with older HELOCs.”

She adds that while not all newer loans are for younger borrowers, that there is some correlation between loan age and homeowner age.

HELOC Balances Climb in Most States

Average outstanding HELOC balances are higher in 45 states and the District of Columbia in 2023.

HELOC balances climbed in most states. Where balances increased the most, there’s no apparent throughline: Sparsely populated South Dakota, a pair of Southern states and Hawaii have little in common other than sharply increasing HELOC balances. As for Colorado, homeowners there increased average balances by more than 10% for the second consecutive year. It’s a testament to the tight housing market in the state: There are fewer homes to choose from and homeowners are increasingly turning to renovation instead of trading up.

States Where the Average HELOC Balance Grew the Most

The states where average HELOC balances declined were among the largest urban centers in the nation: California, Illinois and the states that include the New York metropolitan area saw HELOC balances decline in an otherwise up-balance year.

HELOCs in 2024: Almost Ready for Prime Time?

With consumer demand for credit not slowing down so far in 2024, why aren’t we seeing HELOC offers everywhere?

“Mortgage lenders have been investing heavily in streamlining the HELOC application process,” Allen says, citing examples such as AI-powered property valuations, as well as “consumer-permissioned income” and employment verification.

Allen cautions, however, that due to the larger loan amounts and the lien recording involved, borrowers may need to be a bit more patient than they would for a smaller-sized unsecured loan. In exchange for their patience, they’ll likely receive a loan rate significantly lower than they would for an unsecured loan. Once a HELOC is issued, she advises homeowners to be “very intentional about HELOC utilization” even as home prices continue to appreciate at historic rates.

“Nobody can predict when prices will level off,” she says. “So it is important to not assume that historical price increases will continue indefinitely.”

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you leverage your home equity effectively and efficiently.

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