MortgageReal Estate

Black Knight: Tappable equity hits all-time high

Now 10% above previous 2005 peak

Tappable equity surged to its highest dollar amount on record, far surpassing its previous 2005 peak, according to the latest Mortgage Monitor Report from Black Knight.

Tappable, or lendable, equity increased to $5.4 trillion at the end of February, which is up 10% from its previous 2005 peak, the report showed.

Black Knight defines tappable equity as the total amount of equity a homeowner with a mortgage has available to borrow against before reaching a maximum loan-to-value ratio of 80%. Now, rising home prices have pushed the total amount of such equity to a record high, Black Knight Data and Analytics Executive Vice President Ben Graboske explained.

“As home prices continued their upward trajectory at the national level, the amount of tappable equity available to homeowners with mortgages continued to rise as well,” Graboske said. “Tappable equity rose by $735 billion over the course of 2017, the largest calendar year increase by dollar value on record.

“At $5.4 trillion, total tappable equity is also the highest on record and 10% above the previous, pre-recession peak in 2005,” he said. “An estimated $262 billion in tappable equity was withdrawn in 2017 via cash-out refinances and home equity lines of credit, also reaching a new post-recession peak,” he said.

An estimated $262 billion in tappable equity was withdrawn in 2017 through cash-out refinances and home equity lines of credit, reaching a new post-recession peak. However, Americans are growing more reserved, withdrawing less than 1.25% of all tappable equity in the fourth quarter, a four-year low.

And now, a new study from J.D. Power warns lenders to prepare for a surge in new HELOCs, forecasting the current number of homeowners requesting HELOCs will double over the next five years to 10 million.

Indeed a slight majority of equity drawn in the fourth quarter of 2017 was through HELOCs at 55%. Black Knight explained that while this is among the lowest such share since the housing recovery began, it is likely to rise soon along with interest rates.

“At the start of 2018, some 55% of all tappable equity was held by borrowers with first-lien interest rates below the going 30-year rate,” Graboske said. “Following the nearly 50 basis points rise in interest rates we’ve seen since the start of the year, that share has ballooned to 75%.”

“While rising rates tend to dampen utilization of equity in general, the market is poised for a strong shift toward HELOCs, as they allow borrowers to take advantage of growing equity while holding on to historically low first-lien interest rates,” he said. “Over half of all tappable equity – approximately $2.8 trillion – is held by borrowers with credit scores of 760 or higher and first-lien interest rates below today’s prevailing rate, which creates a large pocket of low-risk HELOC candidates.”

The average cash-out refinance borrower in 2017 had an average credit score of 744 and pulled $68,000 in equity with a resulting loan-to-value ratio of 66%.

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