TransUnion: HELOCs Could Double over Next Five Years

TransUnion, Chicago, said nearly 10 million consumers are expected to originate a home equity line of credit between 2018 and 2022, more than doubling the 4.8 million HELOCs originated in the previous five-year period (2012-2016).

With aggregate home equity surpassing that of the housing boom in the mid-2000s, TransUnion projects between nine and 11 million consumers will originate HELOCs over the next five years, said Joe Mellman, senior vice president and mortgage line of business leader at TransUnion.

“While long-term projections such as this are difficult, broadly we expect there will be approximately 10 million HELOCs originated between 2018 and 2022, driven primarily by continued home equity growth and a relatively robust economy,” Mellman said.

TransUnion estimated 1.4 million new HELOC borrowers in 2017 and 1.6 million in 2018, a 30% increase from the previous two-year period of 2015 (1.1 million) and 2016 (1.2 million). It attributed rising home prices and the resulting increase in equity as fueling interest in HELOCs.

“While HELOC originations often track with home equity, which is correlated to rising home prices, we found that the rebound in HELOCs diverged from the recovery in home values following this past recession,” Mellman said.

TransUnion reported 4.9 million HELOC originations in 2005, when home equity stood at $13.3 trillion. HELOC originations dropped to 600,000 in 2011 as home equity declined to $6.3 trillion. Now, Mellman said, home equity has once again risen to $13.3 trillion in 2016, yet HELOC originations continued to be low at 1.2 million.

Mellman noted “many dynamics in play” as to why consumers were not opening HELOCs at a higher rate.

“One driver may be the ‘hangover effect’ of a once-in-a-lifetime mortgage crisis,” Mellman said. “Another factor could be limitations in supply, as many lenders exited or reduced their HELOC operations during and after the last recession. Other factors such as competition from other credit products–like the remarkable surge in personal loans over the past few years–doubtless also have had some impact. But we believe those effects have and will continue to abate, allowing for a resurgence of this compelling credit product.”

The study noted more than two-thirds of homeowners could be eligible for a HELOC, and their scores skew strongly to the lowest-risk tier. “This amounts to approximately 65 million potential borrowers who meet current eligibility requirements, such as having under 80% loan-to-value in their homes–an extremely large market for lenders to consider,” Mellman said. “HELOCs have traditionally been a popular credit product because their interest rates are generally low, the interest is usually tax deductible and consumers can receive large lines of credit. One of the reasons these lines dried up is that a consumer must have both home equity and good credit–the former of which virtually evaporated during and post-recession, but both of which have improved greatly in the last few years.”

TransUnion studied 60 million consumers who were eligible for a HELOC to understand their propensity to open one. The observation period for consumer credit characteristics took place between June 2015 and May 2016. Consumers were identified as HELOC-eligible in May 2016, while the observation period for opening a new HELOC was between June 2016 and January 2017.