Tappable Equity Falls For First Time Since Housing Recovery Began

Total tappable equity on mortgaged properties decreased in the third quarter – the first drop in nearly a decade – as home prices softened in certain areas of the U.S., according Black Knight’s Mortgage Monitor report.

U.S. homeowners with mortgages had total combined equity of $9.8 trillion in the third quarter, about $5.9 trillion of which was “tappable,” Black Knight’s data shows.

That’s down about $140 billion compared with the second quarter.

Tappable equity is the amount available for homeowners with mortgages to borrow against before hitting a maximum 80% combined loan-to-value (LTV) ratio.

As of the end of the third quarter, about 43.6 million homeowners had tappable equity available, however, that’s 272,000 fewer than in the second quarter, the firm’s data shows.

Ben Graboske, executive vice president of Black Knight’s data and analytics division, says it was “the first decline we’ve seen since the housing recovery began.”

He attributed the decrease to “softening home prices in some of the nation’s most expensive – and equity-rich – markets.”

“Indeed, tappable equity fell in 60 of the 100 largest markets, including 12 of the top 15,” Graboske says in the report. “Three markets in California alone – San Jose, San Francisco and Los Angeles – accounted for 55 percent of the total net decline. Add Seattle into the mix, and you see that just four markets were behind two-thirds of the net reduction in tappable equity. All were areas where home price growth has far outpaced the national average in recent years, but in which prices fell in the third quarter – from as little as one percent in Los Angeles, to a 4.6 percent drop in San Jose.”

Still, the $5.9 trillion of tappable equity available as of the end of the third quarter represented an increase of $571 billion compared with the third quarter 2017.

As Graboske points out, “tappable equity remains near an all-time high.”

“It’s also important to remember that in general third quarters are relatively flat as far as home prices are concerned, and that tappable equity is up on an annual basis in 98 percent of major metro areas,” he says. “But the fact remains that affordability concerns are beginning to have an impact on home prices, particularly in more expensive markets, and as a result, on homeowner equity as well.”

One factor that continues to keep home prices is high is the lack of inventory. As Graboske points out, many homeowners are now reluctant to put their homes on the market – especially if they are looking to upsize – because they are already locked into low-rate mortgages and there is a perception that mortgage rates will continue to increase.

This “rate lock” factor, Graboske says, “may still be holding down available inventory by about six percent.”

“By constraining the supply of available homes, this in turn may be countering what might otherwise be greater downward pressure on home prices,” he adds.

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