Home equity loans: A home value update

[Feb 27, 2011.]

Mortgage lenders approve home equity loan requests based upon the amount of equity in the home and the borrower's credit worthiness. Even the most qualified buyer would not be approved for a home equity loan if the home had no equity. For this reason, home equity loans are dependent on the trend of home values. The most recent reports by the National Association of Realtors (NAR), and the S & P / Case Schiller Home Price Index paint a bleak outlook for present condition home values.

What's happening to home values?

February 22, 2011 the S & P / Case Schiller Home Price Index showed that the national median existing-home price fell 3.7 percent to $158,800 for all housing types between January 2010 and January 2011. According to David M. Blitzer, Chairman of S & P's Index Committee, "Despite improvements in the overall economy, housing continues to drift lower and weaker." The Home Price Index is now only slightly above the trough registered Q1 2009 when prices were falling at almost 9 percent.

Home sales are up, so why are values down?

The National Association of Realtors reported on February 23, 2011 that home sales are up for the third straight month. The pace of sales is now above what it was about a year ago. Closed transactions increased 2.7 percent in January and 5.3 percent year over year.

Home sale activity is higher than a year ago, but tight credit and all-cash buyers are creating a market that mostly benefits investors. Normally, demand drives prices higher. Although demand for housing appears to be strong, prices are still dropping.

With home prices down, and home sales up, what is the affect on home equity loans? Phipps said, "Given the levels of inventory we see today, we believe that traditional homes in good condition have held their value." That means that if you take the distress and cash sales out of the equation, stable homeowners are doing just fine.

Apply for new home equity loans now.

Of the 20 Metropolitan Statistic Areas (MSAs), Cleveland, Ohio and Las Vegas, Nevada have the distinction of having home values now below January 2000 levels. Washington DC and San Diego, California are the only two MSAs to show strength. Eleven markets have hit their lowest levels since prices peaked in 2006-2007. Several markets have hit new lows in the past three months.

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.