Homeowner ‘Tappable Equity’ Reaches an All-Time High of $9.2 Trillion
Tappable equity reached an all-time high of $9.2 trillion in the second quarter, gaining $1 trillion in those three months alone, as record home-price gains made real estate more valuable.
The amount of equity homeowners could borrow against before hitting the 80% loan-to-value limit imposed by most lenders rose from the previous record high of $8.1 trillion in the first quarter, according to a Black Knight report on Wednesday.
While surging property prices have made it difficult for first-time homebuyers to get into the market, it has been a boon to people who already own real estate. The value of a home, when assessed for a refinancing, is measured by what similar homes sell for in the neighborhood.
“This is by far the strongest growth we’ve ever seen and equates to some $173,000 in equity available to the average mortgage holder – a $20,000 increase in a single quarter,” the report said. “With equity levels at record highs and interest rates broadly expected to tick upward in coming years, cash-out lending is likely to play a much larger part in the overall refinance market.”
U.S. home prices surged 18.6% in June from a year earlier, the biggest jump ever recorded in the S&P CoreLogic Case-Shiller National Home Price Index, according to a separate report released last week. The pace was faster than the 16.6% annualized gain recorded in the prior month, which was the previous record in data that goes back more than three decades.
When home-loan rates fall, as they did last year after the Federal Reserve began buying mortgage bonds to support the economy during the pandemic, borrowers typically can get bigger mortgages. That means they can either bid higher for a home they want or shop for properties in a higher price bracket.
The average U.S. rate for a 30-year fixed mortgage fell to an all-time low of 2.65% during January’s first week, according to Freddie Mac. Last week, the rate was 2.87%, the mortgage financier said.
The rate probably will average 2.8% in the current quarter, lower than the 2.9% recorded in the second quarter, according to a forecast from Fannie Mae.
For the year, the rate probably will average 2.9%, which would be cheaper financing than the 3.1% seen last year that was the lowest ever recorded. Next year, it probably will average 3.1%, Fannie Mae economists said.