I came across a report from CoreLogic the other day that said home equity loan lending has risen to the highest level since 2008.
Whenever anyone hears the date “2008,” they immediately think of the housing bubble of the early 2000s.
After all, that’s where the housing market went completely after the housing market was put on hold.
It’s the year we all use now as a barometer to decide if we’re going back to those wild times, which can only mean one thing: incoming misery.
However, the nuance is important here and I will tell you why the numbers from 2008 and the numbers from 2024 are completely different.
First Let’s Add Some Context
CoreLogic economist Archana Pradhan noted that mortgage lending (not HELOCs) grew to the highest level since the first half of 2008 between the first two quarters of 2024.
In the first half of this year, mortgage lenders originated more than 333,000 home loans totaling $23.6 billion.
For comparison, lenders originated $29.9 billion in mortgage loans during the first half of 2008, just before the housing market began to collapse.
It was the last big year for mortgages before they bottomed out. For reference, home equity loans reached $6.4 billion in 2009 and will barely exceed $5 billion annually until 2021.
Part of the reason it has fallen off the cliff is because of overnight credit freezes.
Banks and lenders went out of business, housing prices fell, unemployment increased, and there was no money to buy houses.
When the housing market recovered, mortgage lending remained low because lenders did not participate as they had in the past.
In addition, volume was low because the prices of first homes were also very low.
Thanks to the Fed’s mortgage-backed securities (MBS) purchases, known as Quantitative Easing (QE), mortgage rates hit record lows.
The popular 30-year fixed rate fell to 2.65% in early 2021, per Freddie Mac. This meant there wasn’t much reason to open a second mortgage.
You could go with a cash out refinance instead and secure a much cheaper loan with a 30-year loan.
That’s exactly what homeowners did, even though mortgage rates jumped in early 2022, we saw the opposite effect.
The so-called mortgage rate lock became a phenomenon, where homeowners with mortgage rates ranging from sub-2% to 4% were prohibited from refinancing. Or sales for that matter.
This led to an increase in mortgage lending as homeowners were able to borrow without compromising their down payment.
What About Inflation Since 2008?
Now let’s compare the two totals and factor in inflation. First, $29.9 billion is still more than $23.6 billion. It is about 27% higher.
And that’s comparing regular numbers that aren’t adjusted for inflation. If we really want to compare apples to apples, we need to consider the value of money over the past 16 years.
In fact, $24 billion today would be worth only $16.7 billion in 2008, according to the CPI Inflation Calculator.
That would put the first half of 2024 on par with the years 2001-2004, before the mortgage industry went completely haywire and kicked the writing brain out the door.
Simply put, while it may be the highest number since 2008, it is not as high as it seems.
In addition, home equity levels are now the highest on record. So the configured value is a drop in the bucket in comparison.
In 2008, it was common to take out a second mortgage up to 100% combined to value (CLTV).
That meant that if house prices dipped even slightly, the homeowner would fall into a negative equity situation.
Today, the average homeowner has a much lower loan-to-value (LTV) ratio because of more prudent underwriting standards.
In general, most lenders will not exceed 80% CLTV, leaving a large equity cushion in place for borrowers who choose to acquire their equity today.
There was also very little refinancing
Finally, we need to consider the entire mortgage market. As noted, many homeowners are faced with mortgage costs.
They do not touch their original debts. The only game in town if you want to tap your home equity today is a second loan, such as a home equity loan or HELOC.
So it’s only natural that volume has increased as primary mortgages have decreased. Think of it like a saw.
With very few (to no) borrowers choosing to default on their first mortgage, it is only natural to see an increase in second mortgages.
Back in 2008, refinances were huge AND mortgages were rampant. Imagine if no one was remaking it back then.
How high do you think home equity lending would have been at that time? It’s scary to think about.
Now I’m not going to sit here and say that there isn’t much risk in the housing market due to the increase in mortgage lending.
Of course there is more risk when homeowners owe more and have higher monthly mortgage payments.
But comparing it to 2008 would be unfair for many of the reasons listed above.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
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