Borrowers Gained $1.3 Trillion in Home Equity in Q4 2023

Home equity kept growing in 2023

Equity is one of homeownership’s major financial advantages over renting.

Home equity is how many people build wealth and, when tapped into, can provide borrowers with money for renovating and remodeling, investing, an emergency fund or even paying off other debt.

Homeowners with mortgages saw a collective annual equity increase of $1.3 trillion in 2023’s fourth quarter, according to CoreLogic. The average borrower now sits on $297,700 in equity. See which states enjoyed the largest and smallest bumps to home equity.

The latest home equity gains

Home equity grows or shrinks in conjunction with housing prices.

In 2023’s fourth quarter, the average mortgaged homeowner added $24,442 in equity year-over-year. This equaled an annual jump of 8.6% and a combined $1.3 trillion gain in home equity for U.S. borrowers.

“Rising home prices continue to fuel growing home equity, which, at $298,000 per average borrower remained near historic highs at the end of 2023,” said Selma Hepp, chief economist at CoreLogic. “By extension, at 43%, the average loan-to-value ratio of U.S. borrowers has also remained in line with record lows, which suggests that the typical homeowner has notable home equity reserves that can be tapped if needed.”

Home equity changes by state

The fourth quarter’s home equity gains varied across the country. Borrowers in some states had gains more than double the national average, while others saw their equity recede.

Rhode Island led all states with an annual spike of $61,937 in 2023’s fourth quarter. New Jersey came next with $54,652, then $52,634 in Massachusetts, $49,382 in California and $46,334 in New Hampshire rounded out the top five.

At the other end of the spectrum, Texas borrowers saw their equity drop by $5,659 year-over-year. Above that were increases of $3,368 in New Mexico, $3,972 in Idaho, $5,028 in Mississippi and $7,173 in Utah.

The map below shows the fourth quarter’s estimated annualized home equity changes by state:

How can you use home equity?

Since home equity is tied up in your property, it must be converted to liquid cash in order to be used. There are three main ways to do this: a home equity loan (HEL), a home equity line of credit (HELOC), or a cash-out refinance.

With a home equity loan, you keep your existing mortgage and take out a second loan against your property. These typically have lower closing costs but may come with slightly higher interest rates compared to cash-out refis. Here is a list of everything you need for taking out a home equity loan this year.

HELOCs work similarly to credit cards, with borrowing limits that can be repaid and reused. They usually come with variable rates and low or no closing costs, and you pay interest only on the outstanding loan balance. HELOCs also have set “draw periods” after which you have to repay the remaining balance in full. Here is a full list of HELOC requirements.

With a cash-out refi, you replace your existing home loan with a new primary mortgage. The new loan’s balance will be larger than what you owed, but that difference gets returned to you as cash. Refinance closing costs average around 2-5% of the loan amount and usually get taken out of your cash back total. See if you qualify for a cash-out refi.

Once you’ve cashed out your equity, it can be used for just about anything you want. Many homeowners tap equity to complete home improvements or repairs, consolidate high-interest debt into one cheaper loan payment, or make a down payment on a vacation home or rental property.

How do I calculate my home equity?

Home equity is the amount of cash value built up in your property. As you pay down your mortgage and housing values increase, your equity grows.

To figure out your total equity, take your home’s current value and subtract your mortgage balance. If your house is worth $500,000 with a loan balance of $300,000, then you have $200,000 in equity.

Getting an estimated property value requires using an online evaluator, researching recent comparable home sales in your area, or paying for an appraisal. Your lender can assist you in this process and figure out the best way to take advantage of your equity.

How much equity can I take out of my property?

Typically, borrowers can’t cash out all the equity they built up. With exception, lenders normally prefer to keep 20% of your home’s value untouched as default protection. The remaining amount is referred to as “tappable” equity.

Based on the example in the section above, your 20% buffer comes out to $100,000 ($500,000 x 0.2). After subtracting that from your total equity, you end up with $100,000 in tappable equity ($200,000 - $100,000).

Your next steps

If you have a running list of purposes for your home’s equity, start the process of tapping into it.

The best way to figure out how much you can borrow and which loan type to use is to talk with your lender. They can guide you through property valuations, the best ways to tap your equity and which you qualify for.

Leveraging your equity is one of the biggest benefits of owning a home and a way to make your money work for you.