Black Knight: Tappable Equity Falls for Second Straight Quarter

Mike Sorohan msorohan@mba.org

April 02, 2019

Black Knight, Jacksonville, Fla., said tappable equity--the amount available for homeowners with mortgages to borrow against before hitting a maximum 80 percent combined loan-to-value ratio--fell by $229 billion in the fourth quarter.

The company's monthly Mortgage Monitor Report said after reaching a high of more than $6 trillion in Q2 2018, total tappable equity fell to $5.7 trillion as of the end of 2018.

One state, California, accounted for more than 60 percent of the total national reduction, where the average home price fell by $14,600 over the last six months of 2018.

The report said the vast majority of the decline occurred among homeowners with more than 20 percent equity in their homes. Black Knight said $61 billion in equity was withdrawn in the fourth quarter, the lowest total in nearly three years and representing just percent of available equity, the lowest share since the housing recovery began in 2012. The report said both HELOC and cash-out refinance withdrawals continued to decline in the fourth quarter, likely due to rising interest rates.

"Despite this pullback, California continues to hold 37 percent of all the tappable equity in the country, and six-and-a-half times as much as Texas, the next closest state," noted Ben Graboske, President of Black Knight's Data & Analytics. "It's also important to note that upwards of 80 percent of the national equity loss was among homeowners who had more than 20 percent equity in their homes. So while the decline does reduce the borrowing power available to these homeowners, it does not represent a significant increase in equity stress on the market as a whole."

Graboske added the drop in equity tapping represents a larger trend. "HELOC volumes have been on the decline for the better part of three years now, as rising short-term rates made tapping equity via a line of credit more expensive," he said. "As 30-year fixed interest rates hit their high point for 2018 in the fourth quarter, we saw a similar trend play out among cash-out refis as well. But rates have since pulled back, and the Federal Reserve has signaled there will be no further hikes in 2019."

Black Knight reported the $1.75 trillion in first-lien originations in 2018 marked the lowest volume in four years. Purchase loans made up 67 percent of all lending, the highest such share in 18 years. Purchase lending grew by 5 percent for the year, the lowest annual growth rate since the housing recovery began. Despite this slowing growth, purchase lending hit its highest level since 2006, although volumes remain more than 20 percent below their 2005 peak. Refinance lending fell by 27 percent for the year, and was actually down 44 percent year-over-year in the fourth quarter.

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