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Tappable equity dips for first time since recovery

Americans had less available home equity to tap in the last quarter, and that hasn’t happened in more than six years.

Slowing home prices in the third quarter produced the first quarterly decline in tappable home equity levels since the housing recovery began in 2012, according to Black Knight.

homequityOverall tappable equity declined by $140 billion, compared to the second-quarter level, falling to an estimated $5.9 trillion, the company said. Tappable equity had risen each quarter since the first quarter of 2012.   

“That is the first decline we’ve seen since the housing recovery began, and its cause can be traced directly to softening home prices in some of the nation’s most expensive — and equity-rich —markets,” said Ben Graboske, executive vice president with Black Knight.

Graboske said tappable equity fell in 60 of the 100 largest markets, but the reduction was primarily driven by home-price declines over the quarter in three markets in California — San Jose, San Francisco and Los Angeles — and the Seattle metro area. Those four markets represented two-thirds of the net national decline in tappable equity, according to Black Knight data. Home prices fell by a range of 1 percent in Los Angeles to 4.6 percent in San Jose over the quarter, Black Knight said. 

Equity levels are still really high compared to history, however. Graboske noted that the $5.9 trillion in tappable equity is $571 billion more than was available at the same time last year, and remains near a record high.

“It’s also important to remember that in general third quarters are relatively flat as far as home prices are concerned, and that tappable equity is up on an annual basis in 98 percent of major metro areas,” Graboske said. “But the fact remains that affordability concerns are beginning to have an impact on home prices, particularly in more expensive markets and, as a result, on homeowner equity as well.”

Black Knight estimated that 43.6 million Americans had equity to tap at the end of September, which is down by about 272,000 people compared to the second quarter ending in June. The average amount if equity available to homeowners declined over the quarter by about $2,300, falling to an average of $136,000 per household to end the third quarter.

Equity is considered “tappable” until the borrowered amount hits a maximum loan-to-value of 80 percent, according to Black Knight. The total equity on mortgage properties stood at about $9.8 trillion in the third quarter, Black Knight said. 

In the same report, Black Knight also reported that draws on home equity lines of credit [HELOCs] and cash-out refinances were down in the third quarter. Just $64 billion in equity was withdrawn via HELOCs or cash-out refinances, down 8 percent over the quarter and 10 percent year over year, Black Knight said. The third-quarter (the July-through-September period) typically has the highest HELOC withdrawals during the year, Black Knight added. 


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