More Equity Available to Homeowners, But Many May be Strapped by Higher Costs of Ownership
Written By: Joel Palmer, Op-Ed Writer
An increase in tappable home equity and falling mortgage rates has many industry analysts optimistic about the potential refinance market. However, others caution that consumers are becoming more cautious about taking on more debt due to escalating costs of home ownership.
Technology and data provider Intercontinental Exchange (ICE) Inc. reported in its latest ICE Mortgage Monitor Report that tappable home equity reached a new high of $11.5 trillion in June, more than 9 percent above the same period a year ago. ICE defines tappable equity as money that borrowers can access while still maintaining at least 20 percent equity in their homes.
ICE noted that while overall mortgage debt reached at all-time high of $13.8 trillion in June, the rise in home values rose even sharper. As a result, overall mortgage debt is equal to about 44 percent of overall home values.
Redfin reported earlier this month that the total value of U.S homes reached a record $49.6 trillion, 6.6% higher than a year ago. The total value of U.S. homes has more than doubled in the past decade, climbing nearly 120 percent from $22.7 trillion in June 2014.
The potential for refinancing and home equity lending in the near future is bolstered by the following trends:
ICE reported that 32 million mortgage holders have at least $100,000 in tappable equity, with 4.6 million holding at least $500,000.
Borrowers with credit scores of at least 760 hold two-thirds of tappable equity, according to ICE.
Fewer than 325,000 homeowners are underwater nationwide, representing just 0.60 percent of active mortgages. A large majority of those were originated in the past 3.5 years.
Redfin noted that mortgage rates dropped to their lowest level since April 2023, to an average of 6.34 percent on August 5.
“Home equity lending has been sluggish since interest rates began their climb higher early in 2022,” said Andy Walden, ICE Vice President of Research and Analysis.
“As the Fed raised short-term lending rates, accessing equity became more expensive for homeowners, evidenced by the anemic growth in such lending despite record levels of available, tappable equity. Industry expectations that the Fed will soon begin easing short-term rates could gradually change that dynamic, given the more direct impact short term rates have on home equity rate offerings, and lenders would do well to prepare.”
Fannie Mae has a slightly different take on the mortgage market.
Fannie’s latest economic commentary includes more near-term optimism for mortgage rates, existing sales and purchase originations. But Fannie actually downgraded its forecast for refinance mortgages in 2024 by $26 billion relative to its previous month's forecast, to $346 billion. They expect refinance volumes to grow to $563 billion in 2025 as home prices continue to rise and mortgage rates gradually fall.
Some of that may be due to the overall increasing costs of homeownership beyond just principal and interest payments.
Last month, Fannie Mae researchers published the results of a survey of homeowners and renters conducted at the end of 2023. It found that 67 percent of homeowners had experienced increasing costs for utilities, 57 percent reported increasing homeowners insurance and 56 percent saw their real estate taxes rise.
Among homeowners who reported having these particular housing-related costs, over half said their homeowners insurance and real estate taxes increased "moderately” or "significantly” over the past year. Keep in mind this survey was conducted in December; since then most insurers have lifted their rates for homeowners' coverage by double digits in the last year, CBS News reported last month.
In addition, 38 percent of consumers said they are "somewhat" or "very" stressed about their ability to make payments on their debt, which was the highest percentage since the question was asked in the 2010-2015 time period following the Great Financial Crisis.
“While many homeowners have been shielded from the rising mortgage rate environment after locking in historically low mortgage rates – or perhaps by owning their homes outright – most have not been able to avoid the substantial cost increases to utilities, real estate taxes, home insurance, and routine maintenance,” the authors wrote.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
