The amount of “tappable” equity that U.S. homeowners collectively hold continued to increase in the first quarter, due mainly to rising home prices, however, homeowners are withdrawing equity at a lower rate than in the past, due mainly to rising interest rates, Black Knight’s Mortgage Monitor report shows.
The $5.8 trillion in total tappable equity held by homeowners with mortgages is the most ever recorded, and 16% above the mid-2006 peak, according to the software, data and analytics firm.
Total tappable equity grew by more than $380 billion in the first quarter, the largest single-quarter increase since Black Knight began tracking the metric in 2005.
The average mortgage holder gained $14,700 in tappable equity over the past year and has $113,900 in total tappable equity.
Despite the increase in available equity, the amount withdrawn in the first quarter fell nearly 7.0% compared with the fourth quarter of 2017. Just 1.17% of available equity was tapped, the lowest share since the first quarter of 2014 and the second lowest quarterly share since the beginning of the housing recovery.
The approximately $35 billion withdrawn via home equity lines of credit (HELOCs) in the first quarter marked a two-year low, likely driven by the increasing interest rate spread between first-lien mortgages and HELOCs.
Although total equity withdrawn by dollar amount has increased slightly since the same time last year, the rate of growth pales in comparison to that of tappable equity.
“In the first quarter, homeowners with mortgages withdrew $63 billion in equity via cash-out refinances or HELOCs,” says Ben Graboske, executive vice president of Black Knight’s Data & Analytics division, in a statement. “That represents a slight one percent increase from the same time last year, despite the fact that the amount of equity available for homeowners to borrow against increased by 16 percent over the same time period.”
Graboske says the amount of equity tapped in the first quarter was “the lowest quarterly share in four years and the second lowest since the housing recovery began six years ago.”
“Somewhat surprisingly, even though rising first-lien interest rates normally produce an increase in HELOC lending, the volume of equity withdrawn via lines of credit dropped to a two-year low as well,” he says.
“One driving factor in the decline of HELOC equity utilization is likely the increasing spread between first-lien mortgage interest rates – which are tied most closely to 10-year Treasury yields – and those of HELOCs – which are more closely tied to the federal funds rate,” Graboske explains. “As of late last year, the difference between a HELOC rate and a first-lien rate had widened to 1.5 percent, the widest spread we’ve seen since we began comparing the two rates 10 years ago. The distance between the two has closed somewhat in the second quarter, as 30-year mortgage rates have been on the rise, which does suggest the market remains ripe for relatively low-risk HELOC lending expansion.”
Still, increasing costs in the form of higher interest rates do appear to have impacted homeowners’ borrowing decisions.
“We should also remember that the Federal Reserve raised its target interest rate again at its June meeting, which will likely further increase the standard interest rate on HELOCs in the third quarter,” Graboske adds. “Black Knight will continue to monitor the situation moving forward.”
