ICE Mortgage Monitor: As Tappable Equity Hits Record High of $11.5T, 3 of 5 Mortgage Holders Have at Least $100K to Borrow Against

Rhea-AI Summary

ICE's August 2024 Mortgage Monitor Report reveals record-breaking trends in the housing market. Despite outstanding mortgage debt reaching an all-time high of $13.8T in June, rising home prices have pushed mortgage holder equity to a new peak of $17.6T in Q2 2024. The report highlights:

1. Tappable equity hit a record $11.5T, up 4% from Q1 and 9.2% year-over-year.
2. 32M mortgage holders have at least $100K in tappable equity; 4.6M have $500K+.
3. Total mortgage debt is 44.1% of home values, the third-lowest leverage ratio in 20+ years.
4. Only 0.60% of active mortgages are underwater, with 4.2% having less than 10% equity.
5. Texas, Florida, and Louisiana show increasing negative equity positions in some areas.

Positive

• Record-high mortgage holder equity of $17.6T in Q2 2024
• Tappable equity reached a new peak of $11.5T, up 4% from Q1 and 9.2% YoY
• 32M mortgage holders have at least $100K in tappable equity
• Low market leverage ratio of 44.1%, third-lowest in 20+ years
• Only 0.60% of active mortgages are underwater nationwide

Negative

• Outstanding mortgage debt hit an all-time high of $13.8T in June
• Increasing negative equity positions in some areas of Texas, Florida, and Louisiana
• Home prices in Austin are more than 15% off 2022 peaks
• 2.6% of mortgage holders in Austin and 2.7% in San Antonio are underwater
• 84% of underwater mortgages nationwide were originated within the past 3.5 years

Insights

Financial Analyst

The ICE Mortgage Monitor report reveals a paradoxical situation in the U.S. housing market. Despite record-high $13.8T in outstanding mortgage debt, homeowners' equity has reached an unprecedented $17.6T. This has led to a historically low leverage ratio of 44.1%, indicating a robust financial position for homeowners.

The $11.5T in tappable equity presents a significant opportunity for lenders, especially as 66% of this equity is held by borrowers with high credit scores and low interest rates. However, the sluggish home equity lending market suggests a disconnect between available equity and borrower behavior, likely due to higher interest rates.

The potential easing of Fed rates could stimulate home equity borrowing, presenting a strategic opportunity for lenders to prepare for increased demand in second lien products.

Real Estate Market Analyst

The report highlights a mixed landscape in the real estate market. While national trends show robust equity growth, localized markets are experiencing divergent patterns. Areas like Austin, San Antonio and parts of Florida are seeing price softening and inventory growth, leading to increased negative equity positions.

The concentration of underwater mortgages in recent originations (84% within the past 3.5 years, rising to 97% in some areas) signals a potential vulnerability in markets that have experienced rapid price appreciation followed by corrections. This trend warrants close monitoring, especially in Texas, Florida and Louisiana.

Despite these pockets of concern, the overall market remains strong, with only 0.60% of active mortgages underwater nationally. This suggests a resilient housing market with potential for regional disparities in future performance.

Risk Management Specialist

The report presents a generally positive risk profile for the mortgage market, with some areas of concern. The low overall leverage ratio of 44.1% and high levels of tappable equity provide a significant buffer against potential market downturns.

However, the concentration of risk in recent originations, particularly in markets experiencing price corrections, is a red flag. The fact that 84% of underwater mortgages were originated in the past 3.5 years suggests that underwriting standards and price sustainability in rapidly appreciating markets should be scrutinized.

Lenders should consider implementing robust portfolio monitoring strategies, especially in volatile markets, to identify and mitigate potential risks early. The high concentration of tappable equity among high-credit-score borrowers provides a safety net, but careful product design and risk assessment will be important in navigating the evolving market landscape.

- Even as outstanding mortgage debt hit an all-time high of $13.8T in June, rising home prices outpaced that growth, driving mortgage holder equity to its own new record high of $17.6T in Q2 2024

- Climbing equity has eased overall leverage in the market, with total mortgage debt equivalent to 44.1% of underlying home values, down from 44.6% in Q1 and the third lowest leverage ratio of the past 20+ years

- Tappable equity – the amount a borrower can access while maintaining a healthy 20% equity cushion – also hit a new peak in June at $11.5T, a +4% gain from Q1 and +9.2% year over year

- 32M mortgage holders have at least $100K in tappable equity; 4.6M have at least $500K, and nearly 1.2M have $1M or more, with higher equity holders tending to have lower first lien rates as well

- Borrowers with 760+ credit scores hold two-thirds of tappable equity; a similar share is held by those with sub-4% first lien rates, an inherent incentive to use second lien debt to tap equity, should the need arise

- Fewer than 325K homeowners are underwater nationwide, representing just 0.60% of active mortgages, with another 4.2% having less than 10% equity in their homes

- Texas, Florida, and Louisiana are worth watching as inventory grows and home prices soften in some areas, increasing the number of borrowers in negative equity positions

- Nationally, 84% of underwater mortgages were originated within the past 3.5 years; that share climbs above 97% in markets where prices have pulled back from recent highs

ATLANTA & NEW YORK--(BUSINESS WIRE)-- Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of technology and data, today released its August 2024 ICE Mortgage Monitor Report, based on the company’s industry-leading mortgage, real estate and public records data sets.

Though the ICE Home Price Index (HPI) has shown a general slowdown in the rate of home price growth through June – and in some locales, price declines driven by surplus inventory – mortgage holders’ equity levels continue to hit new heights. As Andy Walden, ICE Vice President of Research and Analysis, explains, there is more outstanding mortgage debt today than at any point in history, but at the same time, overall market leverage remains near all-time lows.

“Outstanding mortgage debt, including both first and second liens, hit an all-time high in June, but growth in home prices has outpaced that gradual rise in debt,” said Walden. “Total cumulative debt leverage – essentially a loan-to-value ratio for the entire mortgage market – is equivalent to 44.1% of underlying home values, the third lowest leverage ratio we’ve seen in the past 20-plus years. Rising home prices have also continued to build the fortunes of existing homeowners, pushing tappable equity – the amount a mortgage holder can leverage while retaining a healthy 20% equity cushion – to its highest level ever.”

Nine out of ten of mortgage holders (48.5M) have some degree of tappable equity. A fair representation of the addressable market for second lien lending, tappable equity continues to be held primarily by higher credit score borrowers with low first lien interest rates. Two-thirds of such equity is held by mortgage holders with credit scores of 760 or higher, with a similar share held by those with first lien rates below 4%.

Three out of five (32M) mortgage holders have at least $100K in tappable equity; 4.6M have at least $500K, and 1.2M have $1M or more. Higher equity levels tend to correspond with lower first lien interest rates, as those borrowers, on average, were able to capitalize on record low interest rates while also buying into the market earlier at lower prices. The average first lien rate of borrowers without tappable equity is approximately 5.5%, nearly a full percentage point above those with up to $50K available to borrow against (4.45%). Borrowers with $50-$199K to borrow against have average first lien rates of just above 4%, while those with $500K or more to borrow against have average rates of around 3.75%.

“Home equity lending has been sluggish since interest rates began their climb higher early in 2022,” Walden said. “As the Fed raised short-term lending rates, accessing equity became more expensive for homeowners, evidenced by the anemic growth in such lending despite record levels of available, tappable equity.

“Industry expectations that the Fed will soon begin easing short-term rates could gradually change that dynamic, given the more direct impact short term rates have on home equity rate offerings, and lenders would do well to prepare. The ability to originate and service home equity loans alongside first lien mortgages will be key – to say nothing of using data-driven portfolio analysis to identify potential second lien customers.”

Fewer than 325K homeowners are underwater on their mortgages nationwide, putting just 0.60% of active loans in a negative equity position, with another 4.2% holding less than 10% equity in their homes. That said, Texas, Florida, and Louisiana are worth watching as inventory grows and home prices soften in some areas.

In Austin, for example, home prices are more than 15% off 2022 peaks, resulting in some 2.6% of mortgage holders owing more than their homes are currently worth. Similarly, in San Antonio, 2.7% of homes are underwater. Negative equity rates are also rising in Florida, as Cape Coral, Lakeland, North Port and Jacksonville – where inventories have surged and home prices are softening – have all seen an increase in negative equity. The same is true of New Orleans and Baton Rouge in Louisiana. Nationwide, 84% of underwater mortgages were originated within the past 3.5 years; that share climbs above 97% in areas like San Antonio, Austin, Cape Coral and North Port, where prices have pulled back from recent highs.

Much more information on these and other topics can be found in this month’s Mortgage Monitor.

About Mortgage Monitor

ICE manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the ICE Home Price Index and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

ICE’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.icemortgagetechnology.com/resources/data-reports

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds, and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges -- including the New York Stock Exchange -- and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines, and automates industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 8, 2024.

Source: Intercontinental Exchange

Category: Mortgage Technology

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Source: Intercontinental Exchange

FAQ

What is the current tappable equity in the US housing market according to ICE's August 2024 report?

According to ICE's August 2024 Mortgage Monitor Report, tappable equity in the US housing market hit a record high of $11.5 trillion.

How many mortgage holders have at least $100,000 in tappable equity as per ICE's report?

The report states that 32 million mortgage holders, or 3 out of 5, have at least $100,000 in tappable equity.

What percentage of active mortgages are underwater according to ICE's August 2024 report?

The report indicates that only 0.60% of active mortgages, or fewer than 325,000 homeowners, are underwater nationwide.

Which states are showing increasing negative equity positions according to ICE's August 2024 report?

The report highlights Texas, Florida, and Louisiana as states worth watching due to increasing negative equity positions in some areas.

What is the total outstanding mortgage debt as of June 2024, according to ICE's report?

The ICE Mortgage Monitor Report states that outstanding mortgage debt hit an all-time high of $13.8 trillion in June 2024.