Tappable equity set a new record in the third quarter and the rate at which people refinanced to withdraw funds from their homes soared to a multi-year high, according to Black Knight’s latest Mortgage Monitor report.
The amount of money homeowners could access while retaining at least 20% of the equity in their homes rose to more than $9.4 trillion from nearly $9.2 trillion the previous quarter. Back in
The market also saw historically high levels of
“The fact that homeowners pulled out more equity in Q3 than at any point in the last 14 years makes perfect sense, given that rates are still historically low and the last couple of years have seen astronomical home price appreciation,” said Andy Walden, vice president of market research at Black Knight, in an email.
Cash-out activity has grown by leaps and bounds this year, driven by interest in upsizing to better accommodate remote work, make home improvements, or a need to consolidate debt amassed amid the pandemic, said Adam Mercado, director of operations at Clearpath Lending.
“The ability to truly create a home workspace or to host friends and family other than at the holidays has become more of a trend with the not-so-distant stay-at-home order,” he said. “Many others have struggled over the past year racking up thousands of dollars of credit card/revolving debt to keep up with monthly expenses.”
Cash-out refinance rates that can be in the 3% range often look attractive compared to credit card debt rates which can be as high as 16% or more, he noted.
While the dollar volume of cash-outs during the third quarter was on par with levels during the mid-aughts housing bubble, the market is very different now. The volume of tappable equity involved was much larger in the third quarter of this year than it was during the second quarter of 2007, Black Knight noted. While cash-out refinancing numbers were similar then, at $72.5 billion, tappable equity totaled only $3.8 trillion just prior to the housing crash, so the extent to which consumers have accessed their available resources is lower.
“Data points like these inevitably, and understandably, lead to comparisons with the run-up to the Great Recession,” Ben Graboske, president of Black Knight Data & Analytics, said in a press release. “It’s therefore particularly important to note that the $70 billion in extracted from the market via cash-out refis in Q3 2021 represents just 0.8% of the available, tappable equity at the start of the quarter.”
However, it is clear that the amount of tappable equity is not rising as quickly as it was.
The amount of median income needed to buy an average house with 20% down is up in October, at 22.4%, from where it started at the outset of 2021 at 18.1%. It’s also near a three-year high and in a range above 20.5% that historically has been tied to slower price growth. The last time affordability constraints were this elevated was in late 2018, when the average mortgage rate was 5%.
“The rate at which tappable equity has grown has slowed from recent quarters — as has that of the home price growth that created it — largely due to the impact of rising rates and tightening affordability,” said Walden.
