“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: Lenders are making home-equity loans at a pace last seen as the bubble was bursting a decade ago. This kind of lending — borrowing against the untapped value in a residence — can get dicey.
Source: Attom Data Solutions
Trend reported: My trusty spreadsheet’s review of the Attom report shows 1.34 million U.S. equity loans were made in the 12 months ended in March, up 5.9 percent vs. the average pace of the previous three years. It’s the fastest lending activity since late 2008, loosely double from the post-recession low. But it’s also one-fifth the pace of the 2006-07 go-go years.
In Los Angeles and Orange counties, 48,409 equity loans were done in the past year, up 1.7 percent vs. the previous three years. Double the post-recession low but far-far-far saner than 505,000-a-year in 2006-07.
Riverside and San Bernardino counties saw 9,954 new equity loans in a year. That’s up 7.8 percent vs. previous three years and roughly triple the post-recession low. However, it’s not even close to the 2006-07 average of 150,000 equity loans.
Dissection: It’s a tad unnerving to see lenders making these deals — also called HELOCs (home-equity lines of credit) or second mortgages — at a pace last seen as the bubble was bursting a decade ago. That previous borrowing binge did not end well.
When the housing market’s bubble burst and the Great Recession started, much of the financial cushion that home equity provided to protect borrowers and lenders alike was gone. A massive second-mortgage-making mania was part of bad lending practices that led to the foreclosures crisis. And afterward, skittish lenders — or maybe smarter ones — made home-equity loans all but go away. Until recently.
Yes, HELOCs can be risky, if used irresponsibly. And they’re often adjustable-rate deals, so borrowers should be in tune with their worst-case scenario costs in today’s rising-rate climate. But these loans also can be a useful financial tool.
Quote: “Homeowners are not treating their home like an ATM machine as we saw in the last housing boom,” said Attom’s Daren Blomquist. “This is another sign that this housing boom is not being fueled by irresponsible lending practices. Certainly, as interest rates rise, that could increase payments on drawn-down HELOCs, so something for homeowners to keep on eye on.”
Another view: Data tracker CoreLogic’s U.S. mortgage delinquency rate is at an 11-year low amid record growth of the equity in homeowner’s properties. Nationwide, 4.3 percent of borrowers in March had missed one or more payments on any type of mortgage; in California, it’s 2.5 percent.
How bubbly? On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … TWO BUBBLES … Please note this second-mortgage data does not speak to the quality of the HELOCs being made these days. When pondering ebbs and flows with risk-taking and the making of mortgages, the caveats “yet” and “the devil is in the details” are always required.
Do not forget, Southern Californians can get a little crazy with their home borrowings.
Previously from Bubble Watch …
Bubble Watch: Are house hunters shying from newly built homes?
Bubble Watch: Is California’s anti-business vibe killing the state’s economy?
