Total U.S. home equity hit a record high of $27.8 trillion in the first quarter of 2022 thanks to rising home values, but not all of that equity is tappable, and home prices have come down in some areas since then.

Tappable equity is the amount homeowners can borrow while holding on to at least 20 percent of a home’s equity. Average tappable equity available to Americans with mortgages increased to a record $207,000 in the first three months of 2022, according to the Black Knight Mortgage Monitor.

The amount of tappable equity increased by a record $1.2 trillion in the same period to more than $11 trillion, Wall Street Journal reported. 

Home values started to fall in the third and fourth quarters of 2022 for first time since 2012 as prices dropped from pandemic housing-market highs, according to Federal Reserve data.

Rising interest rates have made it harder for would-be homeowners to enter the housing market and more expensive for homeowners to use their home equity at a time when inflation is eating away at American’s ability to pay for food, gas and housing.

Home equity grows or falls in step with housing prices. Home prices fell 3 percent in March 2023 — the biggest annual drop in more than a decade.

However, the U.S. housing market looks healthy in 2023 with homeowners having 71.22 percent equity in homes collectively, The Basis Point reported on March 27, 2023. This means total outstanding mortgages are 28.78 percent of the total value of U.S. homes. and people own the remaining 71.22 percent of their homes.

The home equity line of credit (HELOC) industry is thriving, according to Housing Wire.

“For now, the high percentage of equity in U.S. homes looks like a sign of health,” Julian Hebron wrote for The Basis Point.

Homeowners use home equity to build wealth. When tapped into, it provides funds to pay off or consolidate high-interest loans into one cheaper loan payment, make a down payment on a vacation home or rental property, investments, renovations, or act as a financial buffer in case of emergencies.

Converting home equity into liquid cash can be done three main ways: a home equity loan (HEL), a home equity line of credit (HELOC), or a cash-out refinance.

Image by jcomp on Freepik,https://www.freepik.com/author/jcomp