Home Equity: A Lasting Asset in an Evolving Housing Market

As we near the end of the year and approach 2025, the home equity landscape remains one of resilience. Despite the recent volatility in the housing market, rising interest rates, and a shifting economic landscape, homeowners continue to see significant equity in their homes. While many in our industry had hoped for declining interest rates and an uptick in refinancing activity, the reality has been somewhat different. Home equity is here to stay and will continue to play a pivotal role in the financial security of homeowners across the country going into 2025 and beyond.

Current State of Home Equity in 2024
Home equity has been on a steady rise for years, driven by a combination of factors including rising home appreciation and tight housing inventory. As of Q2 2024, homeowners nationwide had collectively amassed $11.5 trillion in tappable equity — the highest level ever recorded, according to the ICE Mortgage Monitor report. This figure represents a 4% increase from the previous quarter and a 9.2% rise year-over-year. This year alone, the average homeowner has gained roughly $14,300 in equity. These gains are providing homeowners with wealth that can be tapped for critical needs such as home renovations, debt consolidation, or emergency expenses.

However, the rising rate environment has slowed the traditional refinancing market significantly. Fewer homeowners are opting to refinance due to the elevated cost of borrowing, leading many to tap into their equity through alternative methods, such as home equity loans and lines of credit (HELOCs). As a result, the home equity lending market remains strong, even as the traditional refinance market contracts.

The Effect of Rising Interest Rates on Home Equity Borrowing
The Federal Reserve’s monetary tightening has caused mortgage rates to climb, making traditional refinancing less attractive. While some industry watchers hoped for a drop in rates by late 2024, this has not yet materialized. Instead, the housing market is experiencing one of the longest periods of sustained high mortgage rates in over two decades. For homeowners who refinanced during the historically low rates of 2020-2021, the likelihood of refinancing again at current rates is low.

Yet, despite these challenges, the demand for home equity products remains strong. The cost of home equity loans and HELOCs has risen alongside the general rate environment, but these products still offer a compelling option for homeowners who need cash, whether for home renovations, debt consolidation or emergency expenses. In fact, home equity withdrawals hit a two-year high through Q3 of $27 billion, according to the latest ICE Mortgage Monitor report.

Why Home Equity Isn’t Going Anywhere
Home equity has solidified its role as a financial pillar for homeowners and a bright spot in the lending landscape. The reasons for this are twofold:

Unprecedented Levels of Built-Up Equity: With housing prices surging over the past decade, homeowners have accumulated substantial equity in their homes. Even if property values plateau or dip slightly, homeowners are sitting on trillions of dollars in tappable equity. For many, this serves as a critical financial asset that can be leveraged in times of need, providing a sense of security and stability.
A Shift from Refinancing to Home Equity Borrowing: As refinancing becomes less practical, more homeowners are turning to home equity loans and HELOCs to access cash. These products allow homeowners to retain their existing low-interest mortgages, while still unlocking capital in their homes. According to TransUnion, HELOC originations are projected to grow by 10% in 2025, underscoring the strong demand for these types of products, even in a high-rate environment.

Market Projections for 2025: What Lies Ahead
As we move into 2025, it’s unlikely that interest rates will decrease significantly in the short term. Many economists forecast that while rate cuts may occur in late 2025 or 2026, we are likely to experience relatively high rates through much of the coming year. Despite this, the overall home equity market is projected to remain robust.

In 2025, the home equity loan market is expected to grow steadily, with an emphasis on responsible lending practices and creditworthiness. Lenders are adjusting their underwriting to ensure that homeowners borrowing against their equity are not over-leveraged, particularly as home values stabilize. The industry is also likely to see increased use of digital solutions to streamline the application process, making it easier for borrowers to access their equity without the traditional administrative hurdles.

For example, using hybrid valuation products such as AVMs and property condition reports rather than full appraisals is helping reduce processing times for home equity loans and HELOCs and cutting down on costs for lenders. This technology-driven approach enables a faster, more efficient way to access funds, further supporting demand in the home equity market.

Home Equity: An Anchor in Uncertain Times
Home equity’s staying power is clear. In times of economic uncertainty, it serves as a crucial financial resource for homeowners, offering a buffer against economic volatility and a source of funds for various needs. Even as traditional refinancing takes a backseat, home equity will continue to be a cornerstone of homeowner wealth, providing a sense of stability in an unpredictable market.

For lenders the focus should remain on helping homeowners access this equity responsibly and efficiently. With CSS’s suite of home equity settlement services, lenders can feel confident that they’re delivering high-quality, compliant, and customer-friendly solutions, helping homeowners unlock the value in their homes safely and efficiently.

While market dynamics are ever-shifting, home equity remains an enduring element of financial stability for millions of Americans. As we head into 2025, the focus on home equity lending will only intensify, as homeowners seek ways to unlock this vital asset without sacrificing the benefits of their low-rate primary mortgages. Home equity isn’t going away—instead, it’s poised to be more valuable than ever as an instrument for financial flexibility and security. CSS is committed to supporting the future of home equity lending with solutions that are secure, efficient, and borrower-focused.