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Home equity borrowing remains subdued

Americans gained a record amount of home equity in the first three months of 2018, but they continue to leave the vast majority of it untapped, according to Black Knight.

In the first quarter, Americans withdrew $63 billion in equity through cash-out refinances or home equity lines of credit (HELOCs), Black Knight said. This represented a 7 percent volume decline from the fourth quarter of 2017. Meanwhile, driven primarily by solid gains in sales prices, home equity levels rose by a record $380 billion in the past first quarter, according to Black Knight.  

tappableequity“Collectively, American homeowners now have $5.8 trillion in tappable equity available, yet only 1.17 percent of that total was withdrawn in the first quarter of the year,” said Ben Graboske, an executive vice president with Black Knight. “That’s the lowest quarterly share in four years, and the second lowest since the housing recovery began six years ago.” 

Overall tappable equity grew by $820 billion over the 12-month period. Home equity levels have risen much faster than people are borrowing against it.

The $63 billion withdrawn in the first quarter represented an increase of just 1 percent compared to the amount tapped in the first quarter of 2017; however, the amount of tappable equity rose by 16 percent over the 12-month period, Black Knight said. The average mortgage holder gained $14,700 in tappable equity over the 12 months through March 2018 and has accumulated $113,900 in total equity, Black Knight said. 

In the hottest markets, though, the gains have been significantly higher. Borrowers in San Jose, California, gained an average $191,500 in equity, the most in the country over this 12-month period. The average San Jose homeowner had accumulated a total of $695,000 in equity. 

Black Knight defines tappable equity as any amount of equity locked up in the home above a baseline 20 percent homeowner equity stake on the mortgaged amount.

HELOC borrowing falls

HELOC usage also fell to a two-year low in the first quarter, Black Knight said. Americans tapped $35 billion via HELOCs, down 1 percent compared to the first quarter of 2017. The volume of cash-out refinance rose by 5 percent year over year in the first quarter, Black Knight said. At the end of 2017, HELOC rates were significantly higher than those of cash-out refinances, and the spread between these rates had widened, making cash-outs relatively more attractive.

“As of late last year, the difference between a HELOC rate and a first-lien rate had widened to 1.5 percent, the widest spread we’ve seen since we began comparing the two rates 10 years ago,” Graboske said. Graboske has previously said that HELOCs should gain popularity as long-term rates rise, making fixed-rate cash-out refinances less attractive to borrowers with a low-rate first mortgage. He noted, though, that the Federal Reserve has been raising the federal funds rates, which tends to push up adjustable borrowing rates and thus the cost of HELOCs.

"Increasing costs in the form of higher interest rates do appear to have impacted homeowners’ borrowing decisions in Q1 2018," Graboske said. "We should also remember that the Federal Reserve raised its target interest rate again at its June meeting, which will likely further increase the standard interest rate on HELOCs in Q3 2018."

Other tracking agencies have recently reported mixed data on HELOC-origination activity.

Equifax reported that new HELOC-line originations through February dropped 5.4 percent compared to the first two months of 2017. Home equity installment loans were up by 14 percent for the same period, Equifax data suggests.

Meanwhile, Attom Data Solutions reported a preliminary first-quarter 2018 estimate of 347,875 new HELOC lines, which was up 18 percent over the previous quarter and up 14 percent from first-quarter 2017. 


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