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Home Equity Lending in 2024: What You Need to Know

The housing market has seen strange levels of activity and price growth over the past few years. As we look ahead to 2024, many are wondering what the future holds for home values, mortgage rates, and options for home equity lending. In this extensive guide, we’ll explore what experts are forecasting for the multi-family housing market and mortgage industry in 2024 and how that could impact homeowners looking to tap into their home equity. By understanding the landscape and having realistic expectations, homeowners will be well-positioned to make informed financial decisions.

Macroeconomic Factors Will Shape the Housing Market in 2024

Several key macroeconomic factors are likely to influence the housing market and mortgage lending environment in 2024:

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Interest Rates

Rising interest rates in 2022 made home buying less affordable and cooled sales activity compared to recent years. Most experts believe the Federal Reserve will continue raising rates in 2023 to combat high inflation, which will keep mortgage rates elevated. The Mortgage Bankers Association is forecasting 30-year fixed mortgage rates to average around 7% in 2024.[1] Sustained high-interest rates will reduce buyer demand and put downward pressure on home price appreciation. However, it may also stabilize prices by limiting speculation.

Inflation

Stubbornly high inflation that has persisted throughout 2022 will remain a challenge for the Federal Reserve to combat in 2023. How successful they are at taming inflation without causing a recession will be a major factor impacting economic conditions like job and wage growth. Slowing inflation could give the Fed more leeway to pause rate hikes, which would benefit the housing sector. However, inflation remaining elevated may force continued rate hikes that further douse buyer demand.

Employment and Wages

So far the job market has remained remarkably strong despite economic headwinds. As long as unemployment stays low and wages rise moderately, it will support continued growth in the housing sector. However, overly aggressive rate hikes aimed at crushing inflation run the risk of causing job losses. A spike in unemployment would dampen buyers’ confidence and ability to take on a mortgage.

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Housing Supply

The supply of both new and existing homes remains constrained compared to demand. Along with high prices and rates, limited inventory is hampering sales and worsening affordability issues. It will take time to boost new home construction and significantly replenish supply levels. Tight housing supply will continue buoying home prices but curtail overall transaction volumes in 2024.

All of these macro factors will shape the housing market outcomes in 2024. Understanding their likely dynamics will help homeowners and investors evaluate the mortgage and equity lending environment next year.

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Projections for the Single-Family Housing Market in 2024

With those broader economic influences in mind, here are some projections for specific trends in the single-family housing sector in 2024:

Home Prices

After several years of outsized price gains far exceeding inflation, most experts believe nationwide home price appreciation will decelerate significantly in 2024.[2] The National Association of Realtors is forecasting prices to rise a modest 2.8% on average next year compared to 2023. However, there will still be considerable local and regional variations. Markets that saw the biggest run-ups will likely stabilize or see values decline slightly as demand cools off. Inventory remains a key factor supporting prices, though rising supply could cap appreciation.

Home Sales

The combination of elevated rates and still limited supply of affordable homes will likely result in a 7-10% decline in existing home sales volumes for 2024 compared to 2023 per the NAR and Fannie Mae. Although rates are projected to hold above 7%, they may stabilize at that level, taking some pressure off of buyers’ ability to qualify. Sales could pick up late in the year if rates begin dropping on the expectation of slower inflation and Fed policy changes. Still, the refinance boom days of sub-3% rates seem to be behind us for now.

Days on Market

While the market will not return to the frenetic seller’s frenzy conditions of 2021, inventory remains inadequate for demand in many areas. As such, properties in desirable locations should still see competitive bidding and sell within 30 days on average, according to realtor.com. Less sought-after areas may take 45-60 days, with price reductions required to cultivate buyer interest. Absorption rates should improve, and appreciation should stabilize with gradually rising inventory levels through 2024.

Builder Sentiment

The National Association of Home Builders (NAHB) Housing Market Index posted its seventh straight monthly decline in October as rising costs and rates dampened builders’ outlook. With affordability issues intensifying, new home construction is expected to fall 5-10% in 2024, according to economists surveyed by the NAHB. However, some tapering of lumber and other material costs could prompt a modest rebound in single-family starts later in 2024 if demand holds up.

In summary, 2024 will likely represent a transition year for the housing market as it adjusts to higher rates and slower but positive growth. Lenders and homeowners need to understand the evolving landscape to make prudent choices.

Projections for Multifamily Rentals in 2024

While single-family sales cool, the multifamily rental sector is positioned to remain a relatively bright spot:

Rent Growth

Nationwide effective rent growth is expected to moderate from over 15% annual gains to 7-8% in 2024 as demand eases from recent peaks, according to realPage. Tight inventory growth means strong underlying demand will keep absorbing new renters and supporting solid rent increases across the country. The highest rent hikes may occur in the Sun Belt and job growth hotspots.

Occupancy Rates

With rent growth still outstripping inflation and new supply rising gradually, national occupancy should remain high, around 95-96% on average for 2024, according to Axiometrics. Certain sunbelt metros could see occupancies exceeding 98% again as migration patterns shift demand to growth regions. Healthy employment growth will sustain high absorption of new renters to occupy recently delivered units.

New Development

Multifamily permitting and construction peaked in late 2021 but is projected to rise another 5-10% in 2024, per the ULI Real Estate Economic Forecast. Strong demand fundamentals like rent growth, employment expansion, and tight existing supply mean there is ample market support to justify increased building activity.[3] Growing starts in 2023-2024 will finally boost inventory heading into 2025.

So, while the single-family ownership market adjusts to higher rates, rentals provide a stable asset class for investors seeking yields as renters prioritize affordability over ownership in the near term. Multifamily product types leveraging amenities remain well-positioned to fill the demand void from decreased mobility and new household formation trends.

Understanding Options for Home Equity Borrowing in 2024

With insights on the projected housing and lending landscape in 2024, let’s delve into the specific options homeowners have to access their home equity:

Home Equity Line of Credit (HELOC)

HELOCs enable you to tap a portion of your home’s equity, typically 65-80% of the appraised value minus your current mortgage balance, through revolving credit like a credit card. Interest is charged only on what you borrow, and rates currently average 5.5-7.5% depending on your credit.[4] HELOCs carry lower closing costs than cash-out refinances and provide flexibility to access funds for various needs like home improvements or debt consolidation over a 10-15-year draw period. Repayment terms following the draw period average 10-20 years, so consider your ability to make equal monthly payments. Because equity borrowing is tied to home value, a sustained downturn could reduce available credit limits. With home price appreciation forecast to slow in 2024-2025, HELOCs won’t carry as much borrowing potential in rising markets.

Cash-Out Refinance

A cash-out refinance relieves your current mortgage with a new, larger loan and gives you the difference in cash payout. Closing costs typically range from 2-5% of the total loan. The main advantages are potentially consolidating higher-rate debt and avoiding recurring interest charges of revolving credit like a HELOC. However, refinances require qualifying for new loan terms, including higher, fixed-rate mortgages projected to average around 7% in 2024. Interest is also charged on the entire loan balance rather than just what’s drawn from available equity like a HELOC. Unless rates drop meaningfully, cashing out home equity may be more expensive through refinancing compared to a HELOC in the current rate environment.

Home Equity Conversion Mortgage (Reverse Mortgage)

Reverse mortgages provide tax-free loan proceeds to qualifying homeowners 62 and older based on available equity without requiring monthly payments until the home is sold. However, high upfront costs and ongoing monthly loan charges deplete equity if held long-term. Mortgage insurance also requires repayment of the loan balance if the borrower dies or moves within a certain timeframe. While HECM loans enable retirement income from home equity, the growing debt balance outweighs long-run benefits for most due to compounded interest costs. Consider meeting income needs through downsizing, part-time work, or traditional retirement investments before turning to a reverse mortgage.

Equity Sharing

Third-party investors can provide lump sums of up to 30% of a home’s value in exchange for shares of the property’s future appreciation. Companies offering these shared equity agreements present them as an alternative to high-interest debt, but the contracts tend to be complex with many long-term uncertainties. Homeowners give up a portion of future home value gains permanently in exchange for today’s cash payout. While this taps equity without debt, the percentage of long-term home value surrendered to the investor grows exponentially the longer the contract remains in place. Only consider equity sharing as an absolute last resort after exploring lower-cost options like a HELOC or personal loan. The ongoing financial obligations and lack of clear upside make these deals high risk for homeowners seeking alternative means of cashing out equity.

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