Americans Are Cashing In on Home Equity at the Fastest Pace Since the Financial Crisis

American homeowners are borrowing against their houses at a pace last seen in the run-up to 2008.

The amount owed on home equity lines of credit, or HELOCs, rose to $481 billion in the third quarter, up from $422 billion a year earlier, according to the Federal Reserve Bank of New York. The 14% jump marks the sixth straight quarter of faster growth.

In the third quarter alone, borrowing rose by $23 billion, roughly the value of 55,000 typical American homes. That is “a clear sign of how much equity homeowners are tapping,” Jefferies analyst Jonathan Matuszewski said in a note on Wednesday.

More people are joining in, too. The number of open HELOC accounts climbed to 13.35 million, growing at the fastest pace since early 2023.

The Stocks Noticed First

Home Depot Inc. (NYSE:HD) has rallied 21% over the past month, from about $290 in mid-October to $351.31 at Wednesday’s close. The stock rose another 0.6% to $353.50 in premarket trading Thursday, according to Benzinga Pro data.

Lowe’s Companies Inc. (NYSE:LOW) has gained 25% over the same period.

The State Street SPDR S&P Homebuilders ETF (NYSE:XHB) is up 9.2% over the past month, while the State Street SPDR S&P 500 ETF (NYSE:SPY) is down 2.4%.

Jefferies rates both retailers Buy, betting that homeowners will spend the gains in their home values on their houses.

The Last Time Borrowing Grew This Fast, It Ended Badly

In the mid-2000s, home prices seemed to only go up. Homeowners borrowed against their houses to pay for cars, vacations and second homes.

HELOC balances roughly tripled, from about $250 billion in early 2003 to around $700 billion as the crisis hit, according to the New York Fed figures in the Jefferies note.

Then home prices fell, and the value people had borrowed against shrank with them.

Balances declined for more than a decade and bottomed near $320 billion in 2022. Today’s surge started from that low.

The trend looks like 2006. The reasons behind it are different.

Homeowners Are Fixing Up Instead of Moving

The main reason is cost.

Home equity line rates have fallen by more than 2.5 percentage points over two years to around 7.5%, according to Jefferies. That is barely above the 7.2% rate on a new mortgage. In the past, the gap was several percentage points.

At the same time, millions of Americans are locked in much cheaper mortgages before 2022. Selling would mean giving up that low rate. Borrowing against the house lets them keep it.

“In a housing market where moving remains expensive, we think those economics make renovating in place an increasingly compelling choice,” Matuszewski said.

Historically, about 40% of this borrowing has gone into home improvement, such as new kitchens, roofs and extra rooms, according to Jefferies.

Jefferies expects that spending to keep growing into 2027, as homeowners finally take on large projects they put off after the pandemic.

Rising Rates Have Not Slowed the Borrowing

The risk is the cost of the loans themselves.

Most home equity lines have variable rates, so payments go up when the Federal Reserve raises interest rates. After October’s hot inflation report, Ulrike Hoffmann-Burchardi of UBS expects at least two more Fed hikes.

So far, that has not stopped homeowners. These credit lines still cost about the same as a new mortgage.

The big difference from 2006 is why people borrow. Back then, Americans borrowed against their homes to spend elsewhere. Today, they borrow to stay put, and Jefferies expects much of that money to keep flowing to Home Depot and Lowe’s into 2027.

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