|
|
Origination of home-secured credit lines has been subdued because interest rates on the open-end product have risen so much more than on first mortgages. The outlook calls for a worsening spread.
U.S. homeowners extracted $43 billion in home equity during the third quarter, according to the December 2023 ICE Mortgage Monitor Report, which was previously reported as the Black Knight Mortgage Monitor.
“That’s some 55% below the average withdrawal rate seen in the 12 years leading up to the Fed’s most recent tightening cycle,” ICE Vice President of Enterprise Research Andy Walden said in a written statement. “That’s equivalent to $54 billion – $250B over the last 18 months – in ‘missing’ withdrawals that might have otherwise stimulated the broader economy.”
Still, equity extractions exceeded activity during the preceding three-month period, when volume came to $42 billion.
Third-quarter equity extractions represented just 0.41% of available tappable equity at the start of the third quarter, “roughly on par with what we’ve seen over the previous three quarters, but 55% below the average from 2010-2022,” the report stated.
ICE previously revealed that tappable equity — the available equity up to an 80 percent loan-to-value ratio — was $10.6 trillion as of the third quarter, up from $10.5 trillion a year earlier.
Despite near-record available equity, ICE noted that elevated interest rates likely caused homeowners who have an existing mortgage to forgo accessing available equity — creating headwinds for second-lien originations.
The report said that the equity extraction deficits are worth monitoring for their impact on consumer spending — especially home renovations.
In September, the average initial interest rate on new second-lien home-equity lines of credit was 9.3%, the Atlanta-based company reported. That was the highest rate since ICE’s McDash home-equity data collection began in 2008.
Despite the recent leveling off in rates, the average HELOC rate remains approximately 200 basis points higher than average first-lien, 30-year, fixed rates.
“That’s a far cry from last spring, when you could get a lower rate on a HELOC than you could on a first lien mortgage – an anomaly that pushed home equity lending sharply higher last year,” the report stated.
ICE said that if the Federal Reserve continues to hold steady on interest rates, HELOC rate offerings might remain near their current levels through early next year.
Still, according to ICE, the rate spread between HELOCs could widen given that first mortgage rates are forecasted to ease early in 2024 “with the potential to swing the pendulum modestly back toward cash-out lending through the middle of 2024.”