U.S. homeowners collectively had $16.4 trillion in home equity as of the third quarter – $10.6 trillion of which is available to borrow against while keeping a 20% equity stake in the home, according to ICE Mortgage Technology’s Mortgage Monitor report.
As a result, there has been a recent “mini-surge” in cash-out refinance activity, which has been primarily equity-driven.
But according to Andy Walden, vice president of enterprise research for ICE, mortgage lenders could be taking greater advantage of the opportunity.
“Unfortunately, with borrower retention at a 17-year low, lenders are losing customers seeking to tap equity via cash-outs,” Walden, says in the report. “What’s notable is that lenders are losing this business not due to their rate offerings, but rather an inability to identify and market to those borrowers likely to transact in today’s market.”
“The rate/term refinance market is essentially non-existent today,” Walden says in the report. “In fact, the refinance market in general is but a shadow of what it once was. There are pockets of cash-out lending occurring among a particular set of borrowers, but even that has been a niche market.
But he adds: “Given that homeowner equity has risen alongside home prices and is now within 2 percent of the peaks we saw in 2022, it makes sense that cash-outs would still appeal to some borrowers.”
And home prices are expected to increase – giving homeowners even more equity upon which to borrow.
“Historically tight inventory levels have been further bolstering prices, which hit yet another all-time high in September, with the annual growth rate accelerating to 4.3 percent from effectively flat just four months before,” Walden says. “That said, the pace of monthly gains slowed to 0.39 percent in September, marking the smallest seasonally adjusted gain since January.”
Photo: Pepi Stojanovski