The November 2024 ICE Mortgage Monitor Report, produced by the Intercontinental Exchange, found that mortgage holders withdrew $48 billion of home equity in the third quarter.
This was the largest such equity withdrawal volume in the two years since the Federal Reserve started raising rates two years ago.
Both the $27B equity withdrawn via second lien products and the $21B withdrawn via cash-out refinances also marked two-year highs in Q3.
However, homeowners remain historically reluctant to borrow against their home equity. Just 0.42 percent of available tappable equity was withdrawn in Q3 2024, well below the 0.92 percent average extraction rate in the decade preceding the latest round of Fed increases.
“While growth in total mortgage holder equity is slowing along with home prices, Q3’s $17.2T, up 5% from last year, represents another seasonally adjusted record high,” Andy Walden, ICE vice president of research and analysis, said. “Of that total, $11.2T is available to homeowners with mortgages to borrow against while maintaining a 20% equity stake in their homes. On average, that works out to roughly $207K in tappable equity per homeowner. And we did see a bump in equity withdrawals in Q3, with cash-out refi extractions rising on what had been downwardly trending 30-year rates and second-lien home equity products getting a boost from rate cuts late in the quarter.”
Elevated interest rates have been a deterrent to homeowner equity utilization in recent quarters, as 30-year mortgage rates climbed at times into the high 7 percent range. The average introductory rate on second lien home equity lines of credit (HELOCs) rose above 9.5 percent. However, the Federal Reserve recently began to cut short term interest rates, to which HELOC rates are closely pegged, with additional cuts expected on the horizon. As Walden points out, this could make equity withdrawals both more affordable and more attractive.
“Since the Fed began its latest cycle of rate hikes, the monthly payment needed to withdraw $50K via a HELOC more than doubled, from as low as $167 per month back in March 2022 to $413 in January of this year,” Walden said. “The market’s currently pricing in another 1.5 percentage points of cuts through the end of next year. If that comes to fruition, and current spreads hold, it’ll have positive implications for both new equity lending as well as for consumers with existing HELOCs, with the payment on a $50K withdrawal falling back down below $300 per month. While still notably above the 20-year average of $210, that represents a more than 25% reduction from recent highs. Given borrowers’ recent sensitivity to even slight rate drops, this could serve to entice additional HELOC utilization, especially with mortgage holders sitting on record stockpiles of equity and locked into their current homes via low first lien rates.”
Mortgage rates are not expected to see the full 1.5pp projected Fed rate decline flow through to 30-year offerings, which could tighten the spread between 30-year mortgage and HELOC rates.