This year’s housing market has been difficult for prospective buyers—but prosperous for homeowners. Home price gains have resulted in near-record levels of home equity available for homeowners to tap.
Mortgage-holder equity increased to $16 trillion in June, real estate data and analytics company
Black Knight
said this week. The gain is a side effect of strong home prices, which according to the company reached new peaks in 30 of the 50 largest markets that month.
Of total equity, $10.5 trillion was considered “tappable,” or the amount homeowners could access while leaving 20% untouched—a level within 4% of its 2022 peaks, Black Knight said. The average homeowner with a mortgage had just under $200,000 in equity, representing a $14,000 gain from the first quarter but about $8,000 less than the same time in 2022, the report shows.
Homeowners’ high levels of equity are a “second line of defense to support spending should the need arise,”
Wells Fargo
economists Tim Quinlan and Shannon Seery wrote in a report this week. “Yes, higher rates make borrowing more expensive, but a home loan generally carries far lower interest than credit card debt, especially after accounting for the tax deductibility of interest on a mortgage.”
Historically low mortgage rates earlier in the pandemic facilitated a boom in home buying and refinances. Rising mortgage rates later snuffed out the refinance boom—but not before homeowners shaved billions of dollars off their aggregate housing costs. Existing homeowners who refinanced in the last three years saved an aggregate $42 billion by doing so, Black Knight wrote.
Homeowners in June were spending an average 21% of their income on mortgage payments, the Black Knight report found—a significantly lower level than the 36.4% prospective buyers would need to pay in today’s housing market.
Those savings represent another cushion for household spending. “Even if households do not borrow another nickel, there is scope for the refinancing that has already occurred to help sustain consumer spending,” the Wells Fargo economists wrote. “The plunge in mortgage rates in the early days of the pandemic led to a surge in mortgage refinances, which can support households for years to come.”
That’s good news for homeowners, but bad news for would-be buyers who were sidelined by heavy competition, high prices, and rising rates earlier in the pandemic. Low mortgage rates have likely helped keep homeowners in place, limiting the number of previously owned homes on the market. The average 30-year fixed-rate mortgage was 6.96% as of Thursday,
Freddie Mac
said—a level well above the all-time lows set earlier in the pandemic that matches the previous 2023 high in mid-June. Mortgage rates hit 7% for the first time in two decades in late 2022.
A common real estate agent adage is “marry the home, date the rate”—a reminder to prospective buyers that they can refinance if mortgage rates drop. For homeowners in today’s high-rate environment, the adage is somewhat different: ‘I love the mortgage, but I hate my house,’ John Toohig, head of whole loan trading at Raymond James, says. That’s leading some homeowners to consider loans for home improvements, says Toohig. “The longer we’re here in that 7% window for 30-year fixed rates, the better this particular market is going to be,” he says.
Homeowners are particularly interested in second-lien Helocs, Toohig says. These allow homeowners to take out a loan against a portion of their home equity without having to refinance their entire mortgage, he says—an important distinction for homeowners hoping to hang onto their historically low rates.
With abundant equity, homeowners may feel flush—but the same can’t be said for prospective buyers. Housing market affordability worsened in the second quarter as home prices strengthened and mortgage rates rose, according to the National Association of Realtors’ quarterly affordability report, released Thursday. The analysis compares median incomes to the qualifying income needed to buy a home, based on mortgage rates, loan amounts, and down payments.
Housing costs are particularly prohibitive for first-time buyers, the report found: The typical first-time buyer in the second quarter spent nearly 41% of their income on mortgage payments, higher than the 27% cost more broadly.
The rise in housing costs has had an impact on housing activity: Applications for home purchase loans fell for the fourth week in a row last week, according to the Mortgage Bankers Association. “Both prospective buyers and sellers are feeling the squeeze of higher rates as well as low housing inventory, which has prompted a pronounced slowdown in activity this summer,” Bob Broeksmit, the trade group’s president and CEO, said in a statement.
“There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again,” Sam Khater, Freddie Mac’s chief economist, said in a statement with the Thursday mortgage rate data release. “However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.”
Write to Shaina Mishkin at [email protected]
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