Uneven home price gains could limit home equity market growth in 2015

With Arkansas’ housing market on the mend in recent years, homeowners may be tempted to take out a home equity loan and banks and other financial institutions are likely eager to capture that business. But the equity gains are not across the board in Arkansas.

Housing prices in the U.S. are up 3.9% in the third quarter of 2014 compared to the same quarter five years ago, according to the latest information from the Federal Housing Finance Agency. Home prices are up 1.2% in Arkansas during the same five-year period, but not all areas of the state enjoy a price appreciation.

January-October data from the Arkansas Home Sales Report shows that the average home price ($165,527) in the state’s four largest markets was down 0.96%. The average price during the 10-month period was down 3.8% in central Arkansas compared to the same period in 2013; up 0.59% in the Fort Smith metro; down 2.75% in the Jonesboro area; and up 4.15% in Northwest Arkansas. Northwest Arkansas’ average home sales price was also up 8.95% compared to the same period in 2012.

AVERAGE PRICE CHANGES
The average sales price in Benton County for the first 11 months of 2014 was $195,443, ahead of the $184,991 for the same period in 2013, and 9.12% more than the same period in 2012.

Washington County’s average price for the first 11 months was $180,637, up over the 2013 period average of $176,676, and better than the $166,666 in the 2012 period.

The average price in Sebastian County for the first 11 months was $136,888, below the $137,571 for the same period in 2013 and below the $137,716 in the 2012 period.

The average price in Crawford County for the first 11 months was $118,812, better than the $111,667 for the same period in 2013, but below the $119,127 in the 2012 period.

“Relative to the nationwide house-price peak at the beginning of 2007, prices are higher or unchanged in most of the state’s metro areas,” noted a recent report from the Institute for Economic Advancement at the University of Arkansas at Little Rock. “For example, prices in Northwest Arkansas declined by nearly 20% from the beginning of 2007 until mid-2011, but have since recovered to the point of being only 9% below the 2007 peak.”

Total home sales in the four large Arkansas markets between January-October hit 18,342, up 4.08% compared to the same period in 2013, and up 18.53% compared to the same period in 2012.

HOME EQUITY PUSH
According to a press release from Arvest Bank, consumers often obtain a home equity loan to improve their home instead of selling it and buying a higher-priced home. Home equity loans are also used to pay for tuition, vehicles and other big-ticket items.

"Since these loans are on a portion of your home’s value, they are considered mortgage payments, which in some cases gives consumers the possibility of the interest being tax-deductible depending upon their specific situation,” Jack Farley, a vice president with Arvest Bank in the Fort Smith region, said in a statement. “With that potential benefit comes the need to remember that a home equity line is using your home as collateral, so they have to be approached intelligently and responsibly."

Scott Jeffus, a senior loan officer at Bank of Arkansas in Bentonville, said average consumers are likely to be cautious about borrowing against their home given the drop in home prices of a few years ago is still in their memories. He said Bentonville and parts of Rogers have certainly seen home prices come roaring back in many neighborhoods and are somewhat bucking the statewide trend.

Jeffus does see opportunities for added home equity lines of credit in 2015. He said credit score qualification has become more stringent but there has been a slight loosening in the home-to-value ratio requirements for well-qualified borrowers.

According to Arvest, a homeowner can use up to 85% of the home’s value, minus the balance of the mortgage for a home equity loan. If a home is worth $500,000 and $250,000 remains on the mortgage, the homeowner could take out a $175,000 loan.

Farley said homeowners will need to determine what equity is available and also investigate what makes sense for the family budget – such as the choice between a lump sum loan or a line of credit.

“It’s also recommended to limit your overall debt risk and avoid putting your family’s shelter at risk for nonessential purchases,” noted the Arvest statement.