Borrowers Gained $1.1 Trillion in Home Equity in Q3 2023

Home equity keeps 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 $1.1 trillion in 2023’s third quarter, according to CoreLogic. The average borrower now sits on $304,451 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 third quarter, the average mortgaged homeowner added $20,265 in equity year-over-year. This equaled a 6.8% annual jump and a combined $1.1 trillion gain in home equity for U.S. borrowers.

“With price gains continuing to help homeowners build wealth, equity has reached a new high and regained losses that resulted from declines last year,” said Selma Hepp, chief economist at CoreLogic. “And while the average U.S. homeowner gained over $20,000 in additional equity compared with the third quarter of 2022, some markets are seeing larger increases as price growth catches up.”

Home equity changes by state

These home equity gains varied across the country, with borrowers in some states tripling the national average and others even seeing their equity recede.

Hawaii led all states with an annual spike of $63,559 in the third quarter of 2023. California came after with $51,281 then the next six all came from the northeast. In order, Massachusetts, Rhode Island, Connecticut, New Hampshire, New Jersey and Maine boasted gains from $44,615 to $33,740.

At the other end of the spectrum, Texas borrowers saw their equity dip by $8,683 year-over-year. New York came next with a $7,525 decrease, followed by declines of $873 in Utah and $783 in Washington D.C. Louisiana was next with an average equity increase of $3,265.

The map below shows the third 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 earmarked your home’s equity for any number of purposes, 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.