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The median home price in the U.S. increased by 18% in 2021, more than any other year this century by some measures. Despite some moderation in home price increases in 2022, and even slight declines in some regions, house prices remain elevated across all of the U.S.
But instead of cash-out mortgage refinancing, more homeowners are turning to home equity lines of credit, or HELOCs, as a way to tap the equity that's built up in their homes.
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.
One Financing Door Closes as a New Door Opens in 2022
A HELOC is a line of credit based on the amount of home equity a homeowner has in a property. For example, someone with a home valued at $500,000 who has $200,000 remaining on their mortgage has $300,000, or 60%, home equity.
The maximum HELOC amount available is based on the amount of equity homeowners have in relation to the appraised value of the home. One can't borrow against the entire value of the house, but a homeowner with equity can usually borrow up to 85% of the appraised value of the property, known as the combined loan-to-value ratio, or CLTV.
Why the sudden change in preference for HELOCs among some homeowners over the past year?
Cash-out refinances were the arrangement that better suited both lenders and homeowners when average mortgage rates were less than 4% (which was true until early 2022). Homeowners could apply for a new mortgage with similar or lower rates, retire the older mortgage and also take out additional cash borrowings as part of the new mortgage. Lenders got to write a profitable new mortgage, while homeowners unlocked some cash from their home equity.
Then, in 2022, mortgage rates increased, and quite suddenly the cash-out refinancing math no longer worked. Despite homeowners having even more equity in their home than in 2020 or 2021, few homeowners wanted to trade their existing low-rate mortgage for a more expensive monthly payment on a mortgage that had a rate of 6% or more.
Monthly Mortgage Refinancings Decline as Mortgage Rates Rise
So even though homeowners have record levels of home equity—according to CoreLogic, homeowners had an additional $34,000 in home equity in the previous year—cash-out mortgage refinancing was off the table for most homeowners.
Enter the HELOC. Like a mortgage refinance, borrowers need to meet some conditions to access their home equity. A debt-to-income ratio (DTI) under a certain level (often 43%) may need to be met. Also, one's credit history and credit score will also be considered, just as with a first mortgage. Some other conditions, such as a minimum amount of a line of credit to draw upon (at least $25,000 with some lenders), may also be required.
HELOC Balances Increased in 2022, Reversing Multiyear Trend
Overall, HELOC debt nationwide increased by 3.5% in 2022, the first year-over-year increase in over a decade.
| Snapshot: Total HELOC Debt | |||
|---|---|---|---|
| 2020 | 2021 | 2022 | 2021-2022 Change |
| $338.2 B | $295.5 B | $305.9 B | +3.5% |
Source: Experian data from the third quarter (Q3) of each year
It wasn't just higher interest rates pushing up balances (most HELOCs are variable-rate loans). Overall, the number of new HELOCs increased in 2022 as well, from 213,000 HELOC originations in the month of September 2021 to nearly 302,000 in the month of September 2022.
The renewed interest in HELOCs is due in no small part to mortgage refinancing activity disappearing as few homeowners are able to refinance at lower rates. So homeowners seeking to tap their home equity must rely on either home equity loans (a second-lien loan where the homeowner repays a lump-sum loan secured by the property) or HELOCs, which are lines of credit that usually have a variable rate, as many credit cards do.
Balances for many other types of debt increased significantly in 2022, and HELOCs—despite the 3.5% average balance increase—still grew the least among types of debt consumers carry, apart from federal student loans, for which payments were paused more than three years ago.
| Snapshot: Average HELOC Balance | |||
|---|---|---|---|
| 2020 | 2021 | 2022 | 2021-2022 Change |
| $41,954 | $39,556 | $41,045 | +3.8% |
Source: Experian data from Q3 of each year
Average HELOC Balances Highest Among Generation X
Generation X has the highest HELOC balances among the five generations we observed. This follows a pattern that's typical for the generation that's most likely to have financial dependents and carry more debt than other generations.
| Average HELOC Balance by Generation | |||
|---|---|---|---|
| Generation | 2021 | 2022 | Change |
| Generation Z (18-25) | $36,590 | $37,756 | +3.2% |
| Millennials (26-41) | $41,441 | $46,232 | +11.6% |
| Generation X (42-57) | $45,138 | $48,509 | +7.5% |
| Baby boomers (58-76) | $38,297 | $38,162 | -0.4% |
| Silent Generation (77+) | $33,201 | $32,719 | -1.5% |
Source: Experian data from Q3 of each year; ages as of 2022
Millennials saw the greatest increase in average home equity balances, where average balances increased by close to 12% in 2022. With an average balance of more than $46,000, they aren't far behind Generation X. Older generations—baby boomers and the Silent Generation—were able to pare down average balances slightly in 2022
HELOC Balances Climb in Most States, but Especially in the West
Average outstanding HELOC balances are higher in 43 states and the District of Columbia in 2022.
| Average HELOC Balance by State | |||
|---|---|---|---|
| State | 2021 | 2022 | Change |
| Alabama | $32,832 | $34,304 | +4.5% |
| Alaska | $41,053 | $40,500 | -1.3% |
| Arizona | $39,439 | $45,553 | +15.5% |
| Arkansas | $32,119 | $35,140 | +9.4% |
| California | $60,253 | $61,291 | +1.7% |
| Colorado | $42,570 | $47,255 | +11% |
| Connecticut | $47,517 | $45,916 | -3.4% |
| Delaware | $40,410 | $40,888 | +1.2% |
| District of Columbia | $68,171 | $69,278 | +1.6% |
| Florida | $47,668 | $47,458 | -0.4% |
| Georgia | $37,265 | $39,771 | +6.7% |
| Hawaii | $68,866 | $73,915 | +7.3% |
| Idaho | $36,596 | $43,131 | +17.9% |
| Illinois | $34,777 | $34,304 | -1.4% |
| Indiana | $25,562 | $27,284 | +6.7% |
| Iowa | $23,889 | $25,313 | +6% |
| Kansas | $23,492 | $25,324 | +7.8% |
| Kentucky | $28,635 | $30,269 | +5.7% |
| Louisiana | $41,239 | $40,890 | -0.8% |
| Maine | $29,634 | $29,772 | +0.5% |
| Maryland | $40,917 | $41,943 | +2.5% |
| Massachusetts | $47,679 | $48,997 | +2.8% |
| Michigan | $29,717 | $31,231 | +5.1% |
| Minnesota | $28,404 | $30,083 | +5.9% |
| Mississippi | $32,431 | $33,539 | +3.4% |
| Missouri | $27,168 | $28,118 | +3.5% |
| Montana | $43,985 | $49,875 | +13.4% |
| Nebraska | $26,548 | $28,102 | +5.9% |
| Nevada | $44,844 | $49,107 | +9.5% |
| New Hampshire | $37,382 | $37,853 | +1.3% |
| New Jersey | $52,094 | $52,656 | +1.1% |
| New Mexico | $33,560 | $33,114 | -1.3% |
| New York | $50,666 | $51,169 | +1% |
| North Carolina | $28,990 | $30,910 | +6.6% |
| North Dakota | $30,899 | $30,597 | -1.0% |
| Ohio | $28,176 | $28,603 | +1.5% |
| Oklahoma | $36,302 | $37,647 | +3.7% |
| Oregon | $32,624 | $33,851 | +3.8% |
| Pennsylvania | $35,197 | $36,725 | +4.3% |
| Rhode Island | $41,883 | $43,305 | +3.4% |
| South Carolina | $30,923 | $31,739 | +2.6% |
| South Dakota | $28,595 | $30,494 | +6.6% |
| Tennessee | $40,684 | $43,672 | +7.3% |
| Texas | $49,300 | $53,206 | +7.9% |
| Utah | $40,556 | $47,823 | +17.9% |
| Vermont | $31,810 | $31,965 | +0.5% |
| Virginia | $36,746 | $37,978 | +3.4% |
| Washington | $45,073 | $48,799 | +8.3% |
| West Virginia | $28,292 | $28,289 | +0.0% |
| Wisconsin | $21,629 | $23,058 | +6.6% |
| Wyoming | $41,023 | $45,613 | +11.2% |
Source: Experian data from Q3 of each year
HELOC balances climbed in most states, but especially in the West, where home prices climbed the most during 2020 and 2021, largely a result of former California residents looking for more affordable housing. Seven states sport average HELOC balances that are at least 10% higher from the prior year's average.
| States With the Largest Average HELOC Balance Increases | |||
|---|---|---|---|
| State | 2021 | 2022 | Change |
| Utah | $40,556 | $47,823 | +17.9% |
| Idaho | $36,596 | $43,131 | +17.9% |
| Arizona | $39,439 | $45,553 | +15.5% |
| Montana | $43,985 | $49,875 | +13.4% |
| Wyoming | $41,023 | $45,613 | +11.2% |
| Colorado | $42,570 | $47,255 | +11% |
Source: Experian data from Q3 of each year
Something to watch in 2023: Home prices are starting to decline in much of this region after increasing at faster rates than the rest of the country.
Meanwhile, states where average HELOC balances declined in 2022 were more scattered across the U.S., with each of the four national regions having at least one state where balances decreased from 2021 to 2022. Connecticut had the largest balance decline overall, though the average balance of nearly $46,000 is still well above the national average.
| States With the Largest Average HELOC Balance Declines | |||
|---|---|---|---|
| State | 2021 | 2022 | Change |
| Connecticut | $47,517 | $ 45,916 | -3.4% |
| Illinois | $34,777 | $34,304 | -1.4% |
| Alaska | $41,053 | $40,500 | -1.3% |
| New Mexico | $33,560 | $33,114 | -1.3% |
| North Dakota | $30,899 | $30,597 | -1% |
| Louisiana | $41,239 | $40,890 | -0.8% |
| Florida | $47,668 | $ 47,458 | -0.4% |
Source: Experian data from Q3 of each year
HELOC Credit Limits Are up in 2022
The average credit limit for HELOCs in 2022 was $115,650, 4.6% higher than 2021's limit of $110,552. These averages imply that both home equity and the amount of credit homeowners are using have increased. Based on the 2022 average HELOC balance of $41,045, homeowners with HELOCs are collectively using about 35% of their lines of credit.
Like HELOC balances, there's a wide disparity in HELOC limits among the states.
Average HELOC Limits 2022
California and Hawaii lead the nation, by far, in the average HELOC credit lines extended to them. (Hawaii also has the highest average HELOC balance, at nearly $74,000 in 2022.) As these two states tend to have above average home prices, it follows that homeowners are able to tap more home equity in these states.
What the Future May Hold for HELOCs
Home equity is by far the most valuable asset for many middle- and working-class consumers. And with consumers being squeezed by both higher costs for most goods and services, as well as higher interest costs on many types of existing debt, HELOCs are likely to become a more-favored financing tool for homeowners in the year ahead.
HELOCs aren't the most convenient way to borrow, however. The underwriting of a second-lien mortgage isn't as streamlined as the approval process for a credit card, and even most types of auto financing aren't as complicated as some HELOC applications. These inconvenient frictions protect both the lender and the homeowner. Nonetheless, obtaining a HELOC is a little less complicated than a first-lien mortgage, and there aren't all the attendant closing costs as there are with a home purchase.
For the most part, traditional banks make the vast majority of HELOCs. But other types of non-bank online lenders—the same lenders whose pipeline of cash-out mortgage refinancing dried up last year—have announced plans to enter the HELOC market. With households owning a collective $30 trillion of home equity, it's reasonable to expect HELOCs to continue to gain in popularity as mortgage rates remain above 6%.
Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO® Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data.
FICO® is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.