You Won't Believe How Much Home Values Rose Between 2019 and 2022

It's hardly a secret that when mortgage rates fell to record lows in 2020 and 2021, buyers were eager to take advantage. Back then, many mortgage lenders found themselves inundated with applications.

These days, there's less demand for mortgages because rates are a lot higher. Also, limited inventory has fewer buyers pursuing home purchases.

But between 2019 and 2022, home values rose substantially. The median net home value, defined as the value of a home minus any secured debt attached to it, like a mortgage or home equity loan, rose from $139,100 to $201,000. That's according to recent data from the Federal Reserve.

If you own a home whose value has increased, you have a prime opportunity to take advantage by tapping your home equity. But you'll need to do so carefully. And because borrowing rates are so high right now, it's actually not the best time to raid your equity, even if it's gotten to a pretty high level.

The benefit of home equity

The more equity you have in a home, the more options you have. Home equity is defined as your home value minus your mortgage balance. If the market value of your home is $400,000 and you owe $250,000 on your mortgage, you have $150,000 worth of equity.

It's often possible to borrow against your home equity in different ways. You could take out a home equity loan or line of credit and use that money to do everything from updating your living space to taking a vacation. Or you could do a cash-out refinance, where you borrow more than your remaining mortgage balance and use your excess funds for any purpose you want.

You'll generally need decent credit to borrow against your home. But if you have an okay credit score, you may have a pretty easy time getting approved for something like a home equity loan, because that loan is secured by your home itself and the equity you've built in it. You might have a harder time applying for an outside loan, like a personal loan, if your credit is only okay.

The danger of tapping home equity

Falling behind on a personal loan or credit card payment could have negative consequences. But if you fall behind on mortgage payments in the case of a cash-out refinance or home equity loan payments, you could risk losing your home. So while the ability to tap your equity is a good thing in theory, it can also backfire on you.

Plus, tapping home equity leaves you with less of it. That could become problematic if you're trying to upsize.

Furthermore, borrowing rates are generally high right now following a string of interest rate hikes by the Federal Reserve. So while you may have the option to borrow against your home, it's not necessarily going to be a very cost-effective choice.

All told, it's easy to see why home values rose so much between 2019 and 2022. Buyers were so eager to purchase homes at record-low mortgage rates that they were willing to pay just about any price.

The upside of that frenzy is that now, millions of homeowners are equity-rich and have borrowing options because of that. The downside is that first-time home buyers have been virtually pushed out of the real estate market due to affordability constraints.

Over the next few years, we could see home values decline modestly as the housing market cools off. But that'll depend on a host of factors, including how mortgage rates trend.