Sep 7, 2023 - Economy

Americans' homes are worth more than ever, but tapping into that value isn't easy

Data: Black Knight; Note: Data includes cash-out refinances, home equity loans and lines of credit; excludes purchase money or piggyback second loans. Chart: Axios Visuals
Data: Black Knight; Note: Data includes cash-out refinances, home equity loans and lines of credit; excludes purchase money or piggyback second loans. Chart: Axios Visuals

With interest rates so high, Americans are far less inclined to tap into their home equity this year via cash-out refinances or home equity loans.

Why it matters: For homeowners, this is a bummer folks are putting off kitchen renovations, and other home improvements. On the macro level, it's holding back hundreds of billions in consumer spending.

By the numbers: In the second quarter, mortgage holders withdrew $39 billion in equity from their homes — via home equity loans, lines of credit and cash-out refinances, per Black Knight data out Wednesday.

  • That's about half of what folks withdrew in 2022, a year that started off with rates close to rock-bottom levels.

The intrigue: The withdrawal numbers have returned to where they were pre-pandemic — but keep in mind that homeowners have a lot more home equity now.

  • Back in February 2020, the amount of "tappable equity" held by mortgage owners was around $6 trillion; by June of this year, that had grown to $10.5 trillion, per Black Knight. Tappable equity is the amount of money a mortgage holder can borrow while still hanging on to a 20% equity cushion.
  • From 2010 - 2021 mortgage holders withdrew a little less than 1% of all tappable equity.
  • But over the last three quarters that rate has fallen to 0.4% — a decline of more than half.

Eye-popping stat: Black Knight estimates that nearly $200 billion in equity was left untouched over the past 15 months, as interest rates began to rise. "It's starting to become pretty significant," says Andy Walden, the firm's vice president of enterprise research strategy.

The big picture: The cooldown in home equity borrowing is one way the Fed's rate hikes are doing what they're supposed to — chilling the economy to tamp down inflation.

  • Home equity lines of credit — or HELOCs — were a hot way for homeowners to tap their home equity well into last year. That's partly because rates on lines of credit didn't adjust as quickly to the rate-hiking cycle.
  • There was a point last year when you could get a lower rate on a HELOC than a refinance, notes Walden. But that advantage has dissipated.

The bottom line: Not only are mortgage holders locked into the golden handcuffs of a low mortgage rate that keeps them from selling their home,  they're also increasingly locked out of borrowing to tap into all their shiny new home equity.

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