Home equity lending in 2023 grew by only 1.5% compared to the prior year, while outstanding debt increased by 8.3% in the same time period, according to a study released Monday by the Mortgage Bankers Association (MBA).
The data includes total originations of open-ended home equity lines of credit (HELOCs) and closed-end home equity loans. Marina Walsh, MBA’s vice president of industry analytics, explained that the low-level increase was due to a slowdown between application and closing.
“Home equity originations were relatively flat in 2023 compared to 2022,” Walsh said in a statement. “Even with evidence of easing credit availability, with originations activity moving to lower FICO credit scores and higher combined loan-to-value ratios, the closings to applications pull-through rate dropped, indicating that home equity lenders were doing more work for fewer loans.”
Even as debt has ticked upward, greater levels of home equity afforded by a run-up in home prices during and after the COVID-19 pandemic continue to illustrate potential for the market.
“Despite the tepid volume growth in 2023, our study shows an uptick in home equity debt outstanding,” Walsh said. “The elevated mortgage rate environment slowed servicing runoff, and utilization rates also increased. Given the substantial amount of accumulated equity in real estate, there is still untapped potential for home equity lending for lenders and borrowers.”
Total originations of open-ended HELOCs and closed-end home equity loans increased to $2.13 billion per company in 2023, compared with $2.1 billion in 2022. While home renovations made up 65% of total home equity lending volume in 2022, that share fell to 56% in 2023, according to the MBA data.
The pull-through rate, measuring the number of applications that wound up closing, fell from 56% in 2022 to 48% in 2023. But HELOC utilization rates grew last year.
“HELOC utilization rates (dollar volume of outstandings compared to maximum credit facility) improved in 2023 when examining the rates across origination vintage-year cohorts,” the study explained. “For example, at nine months from origination, utilization was 47% in 2023 compared to 45% in 2022.”
The survey was conducted by MBA in the spring of 2024. It collected data “representing $29.8 billion in originations volume for 2023; $184.5 billion in maximum credit extended to borrowers as of December 31, 2023; and $77.2 billion in outstanding borrowings as of December 31, 2023,” the trade group explained in its methodology.
