Looking at the nation’s population of mortgage holders and comparing first and second lien debt against May property values, Black Knight Financial Services has determined that total home equity in the U.S. has increased by nearly $1 trillion in the past year to the highest level since 2007.
As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, this growth in available equity has direct implications for borrowers’ ability to access the equity in their homes.
“We’ve seen total home equity in the mortgage market expand by $825 billion in just the first five months of this year,” said Graboske. “At $7.6 trillion, total net equity is nearly 2.5 times more than it was at the end of 2011, and is at the highest level it’s been since the start of the housing crisis. To put this growth in perspective, consider that the average American homeowner with a mortgage has about $19,000 more equity in his or her home today than a year ago.”
Here are the highlights:
- Total net home equity among mortgage holders surged almost $1 trillion from a year ago, and rose by $825 billion in just the first five months of 2015
- Black Knight calculated available equity by comparing both 1st & 2nd lien debts against property values as of May, and found $7.6 trillion in total net equity
- The average borrower has about $19K more equity than a year ago
- Using an upper limit of an 80% combined LTV (including 1st and 2nd liens), that works out to $4.5 trillion in 'tappable' equity available to borrowers
- $1.7 trillion of total 'tappable' equity (39%) is in California alone
“When we look at the amount of equity available on each home with a mortgage – using an upper limit of 80% total combined loan-to-value (CLTV), including first and second liens – we see that 59% of total net equity could be accessed by borrowers before hitting that limit,” Graboske said. “In total we’re looking at over 37 million borrowers with CLTVs below 80% that have ‘tappable’ equity available in their homes.
“That runs from an average of about $42,000 in equity for those whose homes are in the bottom 20% of property values all the way to $267,000 for those in the top 20%, with a nationwide average of $120,000. And while originations on second lien home equity lines of credit are increasing – they’re up 40% year-over year – they’re still far below the levels seen in 2007; 85% lower, in fact,” he said.
Drilling down in its equity analysis, Black Knight found that, of the $4.5 trillion in “tappable” equity available today, $1.7 trillion – or 39% – lies in California alone, over six times as much as the next closest state (Florida, with approximately $278 billion). Los Angeles by itself accounts for 14% of the nation’s total available equity. By volume, the top 10 states ranked by available equity account for 74% of total “tappable” equity, while the top 10 metro areas account for over half.
However, while the nation’s equity situation has undoubtedly improved, Black Knight also cautioned against the growing sense among many industry observers that the risk posed by existing second lien home equity lines of credit (HELOCs) has passed.
“There is no question that HELOCs being originated today are of exceptional credit quality,” said Graboske. “In fact, HELOC originations in Q1 2015 had the highest weighted average credit score on record. In addition, HELOC delinquency rates are at the lowest level since April 2007. That said, nearly half of all existing HELOCs – originated in the pre-crisis years of 2005-2007 – are facing draw period expirations over the next two-and-a-half years.
“These borrowers are looking at payment shocks of nearly $250 per month on average, and there are about 3 million of them – some 550,000 to 600,000 in the next six months alone. Further, while equity positions are improving, 29% of those facing resets still have less than 10% equity in their homes, making refinancing their way out of payment shocks problematic,” he said. “To give an idea of what this could mean, consider that new non-current rates – HELOCs that were current six months ago and are now at least 60 days delinquent – are up 44% year-over-year on HELOCs originated in 2005, and total delinquencies on that vintage’s HELOCs are up 19% year-to-date.
This remains a situation that bears close watching.”
Other highlights include:
- Total U.S. loan delinquency rate: 4.71%
- Month-over-month change in delinquency rate: -2.22%
- Total U.S. foreclosure pre-sale inventory rate: 1.40%
- Month-over-month change in foreclosure pre-sale inventory rate: -3.79%
- States with highest percentage of non-current loans: MS, NJ, LA, ME, NY
- States with the lowest percentage of non-current loans: SD, MT, MN, CO, ND
- States with highest percentage of seriously delinquent loans: MS, LA, RI, AL, AR