A New Pain Point for US Homeowners During Economic Turmoil — Your HELOC and Refinance Is No Longer A Given
Your house might be worth a fortune, but that might not mean much to the bank — especially if you’re in the market for a mortgage refinancing or home equity line of credit (HELOC). That’s because financial institutions are increasingly rejecting homeowners, taking two of America’s most common lending options off the table at a testy time for the economy, which itself has been showing signs of trouble.
A refinancing reification: Since 2020, US homeowners have accumulated over $35T in housing equity, but many are now “house rich, cash poor.” While rising property values have boosted household wealth, that’s been met with surging property taxes and the weight of ‘higher for longer’ interest rates — with 30-year fixed rates still averaging 6.6% and property taxes in metro areas like Miami Shores and Pittsburgh jumping by over 50%. Much of that increase in equity remains locked up, especially in the West and South, where homeowners are shut out of $284B and $247B, respectively. That leaves many with few options except to sell out or break the bank — and that’s assuming they can do the latter as economic conditions decay.
- Over 40% of refinancing applications were rejected over the past 12 months, the highest decline rate since 2014, as borrowers fail to meet stricter lending standards.
- HELOC access has also tightened, with more than 4.6M American homeowners unable to tap into an estimated $730B in home equity, per a report by HELOC issuer Point.
Running out of Runway
Historically, Americans have leaned on refinancing and HELOCs in times of economic distress — whether during periods of unemployment, when savings start to dry up, or when faced with unexpected expenses. However, Point economist Aaron Terrazas warns, “This idea that home equity used to be a safety net, I’m not sure it is anymore.” That could spell trouble for many.
- Despite holding an average of $313K in equity as of this year, homeowners tapped less than 0.5% of their home equity in Q4 2024 — significantly below the pre-2022 quarterly average of 0.92%.
- HELOC alternatives like cash-out refinancing aren’t viable for many borrowers either, with rates so high — cash-outs dropped from $258B in 2021 to $78B in 2024 — a period when rates went from near-zero to 7%.
The only way out is through: Facing new economic difficulties, many Americans might be left with a limited number of options — at least ones that preclude higher interest rates, greater indebtedness, or a longer payback period. The easiest resolution would be if interest rates came down, but according to Terrazas’ estimates, rates would need to fall by 1% to 1.5% before it becomes a practical option for many — and that doesn’t seem to be happening as rates continue to careen higher amid tariff troubles. And without the support of HELOCs or cash-out refinances — both of which require Americans to give up something — many homeowners might be left taking out new debt or putting it on plastic — exacerbating matters further.
Contributing reporting by Noah Weidner