Black Knight: Rising Rates Mean Fewer Americans Are Tapping Their Home Equity

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Due mainly to rising home prices, the total amount of tappable equity in Americans’ homes hit an all-time high of $5.4 trillion in February, according to Black Knight’s Mortgage Monitor report.

That’s the highest dollar amount on record and 10% above the prior peak set in 2005, the software, data and analytics firm says in the monthly report.

Total tappable equity increased by $735 billion in 2017 – due mainly to rising home prices, according to the report.

However, there is less likelihood that homeowners will tap into that additional equity because interest rates are rising. The report shows that 75% of all tappable equity is now held by borrowers with rates below the prevailing 30-year rate.

Still, the report indicates that home equity lines of credit (HELOCs) could see a modest increase in 2018. About 55% of equity drawn in the fourth quarter of 2017 was tapped via HELOCs. Although that’s the lowest HELOC share seen since the housing recovery began, that percentage is likely to rise along with interest rates, the firm says.

Roughly $2.8 trillion in tappable equity is held by borrowers with credit scores of 760 or higher and first-lien interest rates below today’s prevailing rate, creating a large pocket of low-risk HELOC candidates.

Black Knight defines tappable equity as the total amount of equity a homeowner with a mortgage has available to borrow against before reaching a maximum loan-to-value ratio (LTV) of 80%.

“As home prices continued their upward trajectory at the national level, the amount of tappable equity available to homeowners with mortgages continued to rise as well,” says Ben Graboske, executive vice president of Black Knight, in a release. “Tappable equity rose by $735 billion over the course of 2017, the largest dollar-value calendar year increase on record. At $5.4 trillion, total tappable equity is also the highest on record and 10 percent above the previous, pre-recession peak in 2005. An estimated $262 billion in tappable equity was withdrawn in 2017 via cash-out refinances and HELOCs, also reaching a new post-recession peak.

“Still, Americans seem more reserved in tapping their equity than in years past, withdrawing less than 1.25 percent of all tappable equity in the fourth quarter – a four-year low,” Graboske says. “Of that total, 55 percent was tapped via HELOCs, the lowest such share we’ve seen since the housing recovery began. However, as interest rates rise, it is likely that we will see the HELOC share of equity withdrawals increase as well.”

Graboske says despite rising rates, “the market is poised for a strong shift toward HELOC utilization, as they allow borrowers to take advantage of growing equity while holding on to historically low first-lien interest rates.”

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