Home Equity loan rates for luxury homes show market still weak

If the home equity loan rates are anything to go by, the luxury home market is not out of the woods just yet. Bank of America are charging 10.59% on a 100k home equity loan and insisting on a minimum loan to value ratio of 80% and a FICO credit score of 660+.

Realistically, this means they are offering loans to a very small segment of the population, and a good indicator of when we are in a genuine recovery would be to follow these lenders’ activities. 10.59% is close to usury and makes a striking statement about where BoE considers home values to be going.  Let’s face it, they are one of the largest property owners in the country, so they have some idea of the excess inventory.

Citibank is sitting on similar levels of bank owned properties, and until such times as the backlog is cleared, the market is unlikely to enter a recovery phase. Luxury homes are being discounted at ever increasing levels, causing some increase in sales volumes, with Toll brothers recently reporting the first increase in signed contracts in 4 years. Sensibly, although Toll brothers shares rose on teh news, this is more due to big discounts, tax rebates and cheap financing provided by the developer rather than a sign of any sort of recovery. 300 home sales does not a summer make.

Home equity loan rates extremely high

Everyone expects interest rates to rise at the first sign of inflation, and BoA’s current rate is faintly obscene given the fed interest rates. When home equity loans are being offered at a more affordable level, we will probably be in a recovery, but not until that time.