The November 2024 ICE Mortgage Monitor report shows some thaw in the housing market due to recent short-term interest rate cuts by the Federal Reserve, which is expected to increase equity-based loan volumes. There is. The report includes ICE's third quarter 2024 homeowner equity data, tracking quarterly and annual growth in home equity for mortgage holders.
Andy Walden, vice president of research and analysis at ICE, explains that although the cost of borrowing for home equity is higher than it was before the Fed moved to lower interest rates, that dynamic will likely change within the next year.
“While growth in total mortgage holder capital has slowed along with home prices, the $17.2 trillion in third quarter was up 5% year-over-year and another seasonally adjusted record high,” Walden said. Ta. “Of that total, $11.2 trillion is available to homeowners who can take out a mortgage while retaining 20% of the equity in their home. On average, available equity per homeowner That's about $207,000.
Mortgage holders across the country withdrew $48 billion in home equity in the third quarter of 2024. This is the largest quarterly asset withdrawal in the past two years. Of the home equity withdrawn, $27 billion was withdrawn through second lien products and $21 billion was withdrawn through cash-out refinances, each hitting a two-year high.
“Equity withdrawals spiked in the third quarter,” Walden explained. “Cash-out refi withdrawals increased on the back of 30-year interest rates on a downward trend, and second-lien home equity products received a boost from rate cuts in late 2019,” the quarter said. “
However, homeowners have historically been reluctant to borrow against their home equity, with only 0.42% of available equity being withdrawn in the third quarter of 2024, according to an ICE report. is shown. This compares to 0.92% of the average residential wealth extracted in the 10 years leading up to the previous round. The Fed raises prices.
“Second lien withdrawal rates are now more than a quarter below 'normal' and cash-out refi withdrawals remain down nearly 70%,” Walden added. “Over the past 10 quarters, homeowners have extracted $476 billion in equity, which is exactly half of the amount extracted that we would expect to see under more normal circumstances. That's nearly $5 trillion untapped and not channeled through the broader economy.”
Stubbornly high interest rates, which have risen to the low 7% range, have deterred homeowners from using their home equity and curtailed cash-out refinancing activity. Additionally, the average introductory interest rate for second-lien home equity lines of credit (HELOCs) exceeded 9.5%. However, as the Fed began lowering short-term interest rates in September, HELOC rates are expected to improve as well.
Walden believes that if further interest rate cuts are on the horizon, stock withdrawals could become more affordable and attractive.
“The market is currently pricing in another 1.5 percentage point reduction by the end of next year. If that happens and current spreads hold, the payout for a $50,000 withdrawal will be less than $300 per month, and new will have a positive impact on both consumers with equity loans and existing HELOCs,” Walden said. . “While still significantly above the 20-year average of $210, this is down more than 25% from recent highs, given that modern borrowers are more sensitive to even small interest rate declines. This could encourage more HELOC usage, especially if mortgage holders have record equity and are locked into their current homes with low first lien rates.”
Mortgage rates are not yet expected to fully reflect the expected 1.5 percentage point cut in Fed rates by the 30-year note, according to the latest ICE mortgage futures and industry consensus forecasts. As a result, the spread between 30-year mortgage rates and HELOC rates will narrow, potentially leading some mortgage holders to use equity through HELOCs.
