Tappable equity reached a record $4.7 trillion last year – the highest in a decade
Tappable equity has increased as the number of underwater houses declined due to continued annual home price appreciation, according to Black Knight Financial Services’ latest mortgage monitor report.
"December 2016 marked 56 consecutive months of annual home price appreciation," said Ben Graboske, data & analytics executive vice president at Black Knight. "That served to not only lift an additional one million formerly underwater homeowners back into positive equity throughout the year, but also increased the amount of tappable equity available to U.S. mortgage holders by an additional $568 billion.”
At present, 39.5 million homeowners have tappable equity, suggesting these homeowners’ present combined loan-to-value ratios is less than 80%. The last quarter of 2016 saw $31 billion in equity was taken out of the market as first-lien refinances – the most equity drawn in eight years.
“However, it's important to remember that we've also seen prepayment speeds – which are historically a good indicator of refinance activity – decline by nearly 40% since the start of 2017 in the face of today's higher interest rate environment,”
Graboske said. “Given the fact that nearly 70% of tappable equity belongs to borrowers with current interest rates below today's prevailing 30-year interest rate, the incentive for many of these borrowers is shifting away from tapping equity via a first lien refinance and instead to home equity lines of credit. The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent, but rate-term refinances decline by 75 percent.”
Related stories:
Morning Briefing: American homeowners have $4.7 trillion in tappable equity
"December 2016 marked 56 consecutive months of annual home price appreciation," said Ben Graboske, data & analytics executive vice president at Black Knight. "That served to not only lift an additional one million formerly underwater homeowners back into positive equity throughout the year, but also increased the amount of tappable equity available to U.S. mortgage holders by an additional $568 billion.”
At present, 39.5 million homeowners have tappable equity, suggesting these homeowners’ present combined loan-to-value ratios is less than 80%. The last quarter of 2016 saw $31 billion in equity was taken out of the market as first-lien refinances – the most equity drawn in eight years.
“However, it's important to remember that we've also seen prepayment speeds – which are historically a good indicator of refinance activity – decline by nearly 40% since the start of 2017 in the face of today's higher interest rate environment,”
Graboske said. “Given the fact that nearly 70% of tappable equity belongs to borrowers with current interest rates below today's prevailing 30-year interest rate, the incentive for many of these borrowers is shifting away from tapping equity via a first lien refinance and instead to home equity lines of credit. The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent, but rate-term refinances decline by 75 percent.”
Related stories:
Morning Briefing: American homeowners have $4.7 trillion in tappable equity
