The Great Home Equity Crash Of 2015 Is Here, And It’s Fantastic

During the real estate boom leading up to the Great Recession, banks made record-level home equity loans to customers. Between 2005 and 2008, U.S. banks lent $265 billion in home equity lines of credit (HELOC) to homeowners, and when the recession hit, those homeowners were left with massive loans (on average more than $70,000) hanging over their heads.

Those home equity loans also featured a 10-year “end-of-draw” period with low initial payments, after which those monthly payments would jump by hundreds of dollars. The situation was so dire that experts warned of an impending “HELOC Hell” on the financial horizon. Well, this year the country finally hit the 10-year point of no return, and the numbers are in.

According to the latest financial data, homeowners are overwhelmingly paying back their home equity loans on time. In fact, the delinquency rate on these loans just hit their lowest level in seven years, with less than 2% of borrowers behind on payments.

That’s yet another strong indicator that the real estate market is healthy again. Not only are home sales rising, but more homeowners are taking out new home equity lines of credit to finance remodeling and construction they put off during the recession. The residential remodeling industry produces $47 billion of revenue annually, and economists say that revenue will increase over the next year.

The Joint Center for Housing Studies at Harvard University released a report on Thursday, July 16 predicting a 4% growth in home remodeling revenues by the first quarter of 2016. The surge is being driven both by rising home sales and rising home equity loans. So not only did the Great HELOC Crash of 2015 fail to materialize, the opposite has happened instead.

Ahead of the 10-year end-of-draw period, financial institutions took proactive steps to aggressively warn customers about the increase in payments, and in many cases offered to refinance their credit lines. Plus, the economy continues to improve overall, allowing the vast majority of homeowners to stay above the financial waterline.

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