Home-Equity Lending Is on the Rise Again

For six years starting in 2006, home-equity lines of credit were in decline. Now the loans, which allowed Americans to use their homes like credit cards as they spent freely on luxury cruises, cars, and television sets, are back. Lending for so-called Helocs will rise 30 percent, to $79.6 billion, in 2012, the highest level since the start of the financial crisis in 2008, according to Moody’s Analytics, which projects the total will jump an additional 31 percent, to $104 billion, in 2013. “If house prices continue to rise, home-equity lending will keep rising,” says Mustafa Akcay, a Moody’s economist. “Lenders have been worried about the ability of consumers to pay back their loans, and as the economy improves, that concern is easing.”

Rising house prices mean people have more equity to borrow against. The median U.S. home price probably will rise 8 percent this year, the fastest pace of growth since 2005, according to the Mortgage Bankers Association. Home equity in the second quarter rose by $406 billion to $7.3 trillion, the highest since 2007. “People will spend more of their equity,” says Chris Christopher, an economist at IHS Global Insight. “It won’t be as much as they spent when prices were gaining at a rapid pace in 2005 and 2006, but it should have a positive impact on consumer spending.”