U.S. homeowners have a large amount of potentially available home equity, but utilization remains low due to consumer reluctance, according to data from ICE Mortgage Technology.
The company's Mortgage Monitor report shows that homeowner equity withdrawals through second liens and cash-out refinances reached a two-year high in the third quarter, while rising valuations have increased the number of available utilisations. He pointed out that this was only 0.42% of the possible amount.
Current rates are less than half of the 10-year average extraction rate of 0.92% before the latest Federal Open Market Committee rate hike, Andy Walden, vice president of research and analysis at ICE, said in a press release. The FOMC cut interest rates by 50 basis points at its September meeting, ending a tightening cycle that lasted more than two years.
“Second lien withdrawal rates are now more than a quarter below 'normal' and cash-out refi withdrawals remain down nearly 70%,” Walden continued.
Over the past 10 quarters, homeowners have withdrawn $476 billion in equity. This is exactly half the amount that would be expected under more normal circumstances.
“This equates to nearly $5 trillion of unused dollars that are not being channeled back through the broader economy,” he said.
But some observers may think it's a good thing that homeowners are holding back on investing in equity, given the overspending that contributed to the Great Financial Crisis.
At the end of the third quarter, U.S. homeowners held $17.2 trillion in total assets. Of that, $11.2 trillion was thought to be available. This means that at least 20% of the equity will remain, even if the property owner chooses to convert some of it into cash.
“On average, each homeowner has about $207,000 in available equity,” Walden said. “Then, equity withdrawals surged in the third quarter, cash-out refi withdrawals increased on the back of declining 30-year rates, and second-lien home equity products received a boost from rate cuts late in the quarter. I received it.”
Total capital at the end of the second quarter was $17.6 trillion, of which $11.5 trillion is believed to be available.
However, since the September FOMC meeting, mortgage rates have risen along with the 10-year Treasury yield.
The Fed's 50 basis point short-term rate cut had a more positive effect given that HELOC and HELOC interest rates are more closely aligned.
“Since the Fed began its latest rate hike cycle, the monthly payments required to withdraw $50,000 via a HELOC have increased from a low of $167 per month in March 2022 to a low of $167 per month in January of this year. It more than doubled to $413,” Walden said.
Investors are currently pricing in another 1.5 percentage point rate cut by the Fed by the end of 2025.
“If that happens and current spreads are maintained, it will have a positive impact on both new equity loans and consumers with existing HELOCs, with payments on a $50,000 withdrawal dropping below $300 per month. It will be,” he said. Although this is down 25% from recent highs, it is still above the 20-year average of $210.
“Given that modern borrowers have become more sensitive to even the slightest interest rate decline, especially as mortgage holders hold record equity and are locked into their current homes with low first lien rates, “This could encourage more HELOC use,” Walden predicted.
Meanwhile, the report shows that around 350,000 borrowers affected by Hurricane Helen had difficulty making mortgage payments in September, updating first-look data that reinforces earlier numbers. is also included.
Approximately 4.9 million mortgage borrowers with unpaid principal balances totaling $1 trillion were in the path of either Helen or Hurricane Milton. Both natural disasters damaged approximately 429,000 homes.
This is in addition to the approximately 1.2 million borrowers affected by Hurricane Beryl in early July. Just over 1% of these consumers, or about 13,000 mortgage borrowers, fell behind on their payments after the last storm.
As ICE previously noted, the full impact of the two recent storms will not be felt in the mortgage ecosystem until the October or November payment cycle.
However, ICE McDash Flash's October daily mortgage performance data shows that in Buncombe County, North Carolina (Asheville area), 2.8% of people did not complete their payments by the 15th. Points increased rapidly. This represents 5% of all mortgaged properties in that location.
ICE also found increases of 1.4 to 2.1 percentage points in Florida's Tampa Bay region municipalities of Tampa, Bradenton and St. Petersburg.
The total delinquency rate was 3.48% in September, an increase of 14 basis points from August and 19 basis points from the same month last year, according to the First Look report.
