Slowing Home Price Gains Means Less ‘Tappable’ Equity

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The slowdown in home price appreciation is reducing the amount of “tappable” equity homeowners have available, Black Knight’s Mortgage Monitor report shows.

However, it may not really matter considering that homeowners have been showing little desire to tap anyway.

As of the end of the fourth quarter, total tappable equity was $5.7 trillion, the report shows. 

That’s down from a high of just over $6 trillion in the second quarter.

Ben Graboske, president of Black Knight’s data and analytics division, says the decline is being driven by falling home prices in some of the nation’s most expensive markets.

“In California, where the average home price fell by $14,600 over the last six months of 2018, tappable equity fell by more than $200 billion over that same time period, making up more than 60 percent of the total national decline,” Graboske says in the report.

“Keep in mind, though, that despite this pullback, California continues to hold 37 percent of all the tappable equity in the country, and six-and-a-half times as much as Texas, the next closest state,” he says. “It’s also important to note that upwards of 80 percent of the national equity loss was among homeowners who had more than 20 percent equity in their homes. So while the decline does reduce the borrowing power available to these homeowners, it does not represent a significant increase in equity stress on the market as a whole.”

Both HELOC and cash-out refinance withdrawals continued to decline in the fourth quarter, likely due to rising interest rates.

About $61 billion in equity was withdrawn in the fourth quarter, the lowest total in nearly three years and representing just 1% of available equity, the lowest share since the housing recovery began in 2012, according to the report.

“The fact is, homeowners have been tapping equity less and less,” Graboske says. “In the fourth quarter, equity withdrawals were down 16 percent year-over-year.”

HELOC volumes have been on the decline for the better part of three years now, as rising short-term rates made tapping equity via a line of credit more expensive, Graboske explains.

“As 30-year fixed interest rates hit their high point in the fourth quarter, we saw a similar trend play out among cash-out refis as well,” he says. “But rates have since pulled back, and the Federal Reserve has signaled there will be no further hikes in 2019.

“Heading into the second quarter, the 30-year fixed rate stands at 4.3 percent,” he adds. “The last time rates were at this level, cash-out withdrawals as a share of available equity were more than 25 percent above where they were in the fourth quarter, suggesting we could see a noticeable rebound in homeowners tapping available equity via cash-out refis in coming months given the increased rate incentive to do so.”

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