Homeowners with mortgages collectively held some $17.2 trillion in equity at the end of the third quarter, with the average mortgage borrower holding roughly $319,000 in equity in their home, per new data from Intercontinental Exchange (ICE).
The company’s monthly ICE Mortgage Monitor reported that of that collective equity, approximately $11.2 trillion (about 65%) is tappable, meaning that homeowners can borrow against it while still maintaining a 20% equity stake in their home. That roughly equates to $207,000 in tappable equity per borrower.
While homeowner equity has spiked in recent years due to the rapid rise of home prices during that time, Andy Walden, vice president of research and analysis at ICE, pointed out that growth in equity is slowing since appreciation has cooled.
Notably, equity withdrawals reached a recent high in the third quarter, with mortgage holders pulling some $48 billion out of their homes. That’s the largest volume in the past two years — essentially, the most since the Federal Reserve started hiking interest rates to rein in inflation. Both the $27 billion in equity drawn through second liens and the $21 billion taken out via cash-out refinances during the third quarter were also two-year highs.
Recent loosening of Federal Reserve policy offered borrowers in Q3 a window of receding rates that many apparently took advantage of, though Walden noted that even with the third-quarter bump in equity use, homeowners as a whole are still reluctant to borrow against their homes. Only 0.42% of available tappable equity was drawn from between July and September; compare that to 0.92% on average in the decade before the Fed began raising rates.
“Second-lien withdrawal rates are currently running more than a quarter below ‘normal’ and cash-out refi withdrawals are still down almost 70%,” Walden said. “Over the past 10 quarters homeowners have extracted $476 billion in equity, exactly half the extraction we’d expect to see under more normal circumstances. That equates to nearly a half a trillion untapped dollars that hasn’t flowed back through the broader economy.”
Rates have taken an upward turn again of late, but with more favorable action projected from the Fed this year, Walden said it could bode well for the equity lending market moving forward.
“The market’s currently pricing in another 1.5 percentage points of cuts through the end of next year. If that comes to fruition, and current spreads hold, it’ll have positive implications for both new equity lending as well as for consumers with existing HELOCs, with the payment on a $50K withdrawal falling back down below $300 per month,” he said. “While still notably above the 20-year average of $210, that represents a more than 25% reduction from recent highs.
“Given borrowers’ recent sensitivity to even slight rate drops, this could serve to entice additional HELOC utilization, especially with mortgage holders sitting on record stockpiles of equity and locked into their current homes via low first lien rates.”
