Americans Now Tapping More Home Equity Than Recent Years

Americans tapped more of their home equity in 2015 than any year since the housing market collapse and the economic recession, according to a recent analysis by Black Knight Financial Services, Inc. (NYSE: BKFS).

Nearly 300,000 cash-out refinances were originated in the third quarter ended September 30, 2015—and roughly one million over the past 12 months, according to the latest Mortgage Monitor Report released this week by Black Knight’s data and analytics division.

During the third quarter of 2015, 42% of all first lien refinances involved a cash-out component, which Black Knight notes is the highest share since 2008. Likewise, the average cash-out amount was over $60,000—the highest since 2007.

Overall, there was $64 billion in equity tapped via cash-out refinances over the past year, the highest dollar amount for any equivalent 12-month period since 2008-2009. Even so, this amounted to less than 2% of available equity being tapped, said Black Knight Data & Analytics Senior Vice President Ben Graboske.

“This is slightly below the post-crisis norm, and 80 percent less than the total amount of equity extracted from the market in 2005-2006,” Graboske said in a written statement.

The resulting loan-to-value and credit score risk of recent cash-out refinances remain low as well, with average credit scores on cash-out refis at 748, and the resulting post-cash-out average LTV of 67%—the lowest level on record.

Black Knight also analyzed home affordability, nationally and in certain markets. Using the national median home price and household income levels, Black Knight found the mortgage payment-to-income ratio is still favorable by historical standards. The long-term impact of rising interest rates and home price affordability, however, varies geographically.

To purchase the national median-priced home using a 30-year fixed rate mortgage, it currently takes 21% of the median monthly household income, according to the Black Knight Mortgage Monitor Report.

This percentage is down significantly from 33% at the top of the market in 2006, noted Graboske, and is still below the average of the 26% proportion seen in the more stable years prior to the housing bubble.

“However, when we look at an example scenario using today’s rate of home price appreciation and a 50-basis-point-per-year increase in interest rates, we see that in two years home affordability will be pushing the upper bounds of that pre-bubble average,” Graboske said.

At the state level, under this same scenario, Black Knight indicates eight states would be less affordable than 2000-2002 levels within 12 months, while 22 states would be less affordable within 24 months.

“Right now, both Hawaii and Washington, D.C. are already less affordable than they were during the pre-bubble era,” Graboske said. “On the other hand, even after 24 months under this scenario, Michigan—among other states—would still be much more affordable at the end of 2017 than it was in the early 2000s.”

Now that the U.S. is several years removed from the worst of the housing crash and subsequent economic recession, home values have been steadily gaining lost ground. As a result, this has boosted the amount of available equity homeowners can access.

A Black Knight Mortgage Monitor Report last month indicated a $600 billion increase in the amount of tappable home equity over the last 12 months, adding to what has become $4.2 trillion in available equity Americans may be leaving “on the table.”

Written by Jason Oliva

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