Home equity held by U.S. mortgage borrowers hit an all-time high of $13.8 trillion in June, according to ICE Mortgage Technology’s Mortgage Monitor report.
At the same time, outstanding mortgage debt also hit an all-time high in June – however, with rising home prices, the equity gains outpaced the increase in outstanding debt.
Tappable equity – the amount a borrower can access while maintaining a healthy 20% equity cushion – also hit a new peak in June at $11.5 trillion, an increase of 4% compared with the first quarter and up 9.2% year over year.
“Outstanding mortgage debt, including both first and second liens, hit an all-time high in June, but growth in home prices has outpaced that gradual rise in debt,” says Andy Walden, vice president of research and analysis, ICE, in a statement. “Total cumulative debt leverage – essentially a loan-to-value ratio for the entire mortgage market – is equivalent to 44.1 percent of underlying home values, the third lowest leverage ratio we’ve seen in the past 20-plus years. Rising home prices have also continued to build the fortunes of existing homeowners, pushing tappable equity – the amount a mortgage holder can leverage while retaining a healthy 20 percent equity cushion – to its highest level ever.”
About 32 million mortgage holders have at least $100,000 in tappable equity; 4.6 million have at least $500,000; and nearly 1.2 million have $1 million or more, with higher equity holders tending to have lower first lien rates as well, according to the report.
“Home equity lending has been sluggish since interest rates began their climb higher early in 2022,” Walden says. “As the Fed raised short-term lending rates, accessing equity became more expensive for homeowners, evidenced by the anemic growth in such lending despite record levels of available, tappable equity.
“Industry expectations that the Fed will soon begin easing short-term rates could gradually change that dynamic, given the more direct impact short term rates have on home equity rate offerings, and lenders would do well to prepare,” he adds. “The ability to originate and service home equity loans alongside first lien mortgages will be key – to say nothing of using data-driven portfolio analysis to identify potential second lien customers.”
Fewer than 325,000 homeowners were underwater on their mortgages nationwide in the second quarter, putting just 0.60% of active loans in a negative equity position, with another 4.2% holding less than 10% equity in their homes, ICE’s data show.
The software firm says Texas, Florida, and Louisiana are worth watching as inventory grows and home prices soften in some areas.
Photo: Jennifer Grismer