ICE Mortgage Monitor: Record Levels of Tappable Equity, Fed Rate Cuts Could Spur Resurgence in Home Equity Withdrawals

Rhea-AI Summary

ICE's Q3 2024 Mortgage Monitor Report reveals record-high mortgage holder equity of $17.2T, with $11.2T being 'tappable'. Homeowners withdrew $48B in Q3, marking a two-year high, yet this represents only 0.42% of available equity - less than half the historical 0.92% extraction rate. HELOC rates, which topped 9.5% recently, are expected to decrease to the low 7% range by end of 2025 following Federal Reserve rate cuts. This could reduce monthly payments on a $50K equity withdrawal from $413 to below $300, potentially spurring increased home equity borrowing despite remaining above historical averages.

Positive

• Record-high total mortgage holder equity of $17.2T, up 5% year-over-year
• Average tappable equity per homeowner reaches $207K
• Q3 equity withdrawals hit two-year high at $48B
• Expected Fed rate cuts could make HELOCs more affordable

Negative

• Equity extraction rate at 0.42%, well below 10-year average of 0.92%
• Second lien withdrawals 26% below typical levels
• Cash-out refinance withdrawals 69% below normal
• $476B in untapped equity not flowing into economy over past 10 quarters

Insights

Financial Analyst

The record $17.2T in home equity, with $11.2T being tappable, represents significant untapped potential in the housing market. The historically low 0.42% extraction rate compared to the 0.92% 10-year average signals substantial pent-up demand. The $476B in untapped equity over 10 quarters represents missed economic stimulus. With projected Fed rate cuts potentially lowering HELOC rates to the 7% range by 2025, we could see a significant uptick in equity withdrawals. This would benefit ICE through increased mortgage data services and market activity. The trend suggests a potential resurgence in home equity lending, particularly through HELOCs rather than cash-out refinancing, given the expected rate environment.

Market Research Analyst

The anticipated shift in consumer behavior following Fed rate cuts could significantly impact the mortgage market dynamics. The potential reduction in HELOC monthly payments from $413 to below $300 for a $50K withdrawal marks a important inflection point. Historical data shows borrowers are highly sensitive to rate changes, suggesting pent-up demand could be unleashed. With homeowners holding an average of $207K in tappable equity, this represents a substantial market opportunity. The divergence between HELOC and 30-year mortgage rate trajectories could reshape lending preferences, benefiting ICE's mortgage monitoring and data services revenue streams.

- As of the end of Q3 2024, U.S. mortgage holders held $17.2T in equity, of which $11.2T is ‘tappable,’ meaning it can be borrowed against with the homeowner maintaining a 20% equity stake in their home

- The average homeowner with a mortgage now has $319K of equity in their home, of which $207K is tappable

- Though Q3 withdrawals hit a two-year high – both collectively and individually among second lien products ($27B) and cash-out refinances ($21B) – the total represented just 0.42% of available tappable equity

- Borrowers have been withdrawing equity at less than half the 10-year average 0.92% extraction rate, with second lien products 26% below typical levels and cash-outs 69% below the norm

- The past 10 quarters have seen half the equity extraction to be expected in a ‘normal’ market, meaning $476B has gone untapped and not flowed back through the broader economy

- In recent quarters, introductory rates on HELOCs have topped 9.5%, more than doubling the $167 March 2022 monthly interest-only payment needed for a $50K withdrawal to a high of $413 in January 2024

- Recent Federal Reserve cuts to short-term interest rates – more directly tied to HELOC than 30-year mortgage offerings – have already made equity withdrawals modestly more affordable and attractive

- If both market expectations for an additional ~1.5 pp in additional Fed cuts and current spreads hold true, we could see HELOC rate offerings in the low 7% range by the end of 2025

- That would drop the monthly payment needed to withdraw $50K in equity back down below $300; still notably higher than the historical average, but more than 25% below recent highs

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

This month’s Mortgage Monitor dives deep into ICE’s latest Q3 2024 homeowner equity data, reporting on both quarterly and annual growth in mortgage holders’ housing wealth. Though 30-year interest rates remain volatile, recent and anticipated short-term rate cuts by the Federal Reserve have the potential to positively impact equity-based lending. As Andy Walden, ICE Vice President of Research and Analysis explains, though the cost to borrow against a homeowner’s equity is notably higher than prior to the Fed’s most recent tightening cycle, this dynamic is poised to change in the year ahead.

“While growth in total mortgage holder equity is slowing along with home prices, Q3’s $17.2T, up 5% from last year, represents another seasonally adjusted record high,” said Walden. “Of that total, $11.2T is available to homeowners with mortgages to borrow against while maintaining a 20% equity stake in their homes. On average, that works out to roughly $207K in tappable equity per homeowner. And we did see a bump in equity withdrawals in Q3, with cash-out refi extractions rising on what had been downwardly trending 30-year rates and second-lien home equity products getting a boost from rate cuts late in the quarter.”

In total, U.S. mortgage holders withdrew $48B of home equity in the third quarter. This was the largest such equity withdrawal volume in the two years since the Federal reserve first initiated their latest tightening cycle. Both the $27B equity withdrawn via second lien products and the $21B withdrawn via cash-out refinances also marked their own individual two-year highs in Q3. Still, homeowners remain historically reluctant to borrow against their home equity. Just 0.42% of available tappable equity was withdrawn in Q3 2024, well below the 0.92% average extraction rate in the decade preceding the latest round of Fed increases.

“Despite a two-year high for equity withdrawals in the third quarter, homeowners are still tapping their housing wealth at less than half the rate they have historically,” Walden added. “Second lien withdrawal rates are currently running more than a quarter below ‘normal’ and cash-out refi withdrawals are still down almost 70%. Over the past 10 quarters homeowners have extracted $476B in equity, exactly half the extraction we’d expect to see under more normal circumstances. That equates to nearly a half a trillion untapped dollars that hasn’t flowed back through the broader economy.”

Elevated interest rates have been a deterrent to homeowner equity utilization in recent quarters, as 30-year mortgage rates climbed at times into the high 7% range, curtailing cash-out refinance activity, and the average introductory rate on second lien home equity lines of credit (HELOCs) rose above 9.5%. However, the Federal Reserve recently began to cut short term interest rates, to which HELOC rates are closely pegged, with additional cuts expected on the horizon. As Walden points out, this could make equity withdrawals both more affordable and more attractive.

“Since the Fed began its latest cycle of rate hikes, the monthly payment needed to withdraw $50K via a HELOC more than doubled, from as low as $167 per month back in March 2022 to $413 in January of this year,” Walden said. “The market’s currently pricing in another 1.5 percentage points of cuts through the end of next year. If that comes to fruition, and current spreads hold, it’ll have positive implications for both new equity lending as well as for consumers with existing HELOCs, with the payment on a $50K withdrawal falling back down below $300 per month. While still notably above the 20-year average of $210, that represents a more than 25% reduction from recent highs. Given borrowers’ recent sensitivity to even slight rate drops, this could serve to entice additional HELOC utilization, especially with mortgage holders sitting on record stockpiles of equity and locked into their current homes via low first lien rates.”

Based on the latest ICE Mortgage Futures as well as industry consensus forecasts, mortgage rates are not expected to see the full 1.5pp projected Fed rate decline flow through to 30-year offerings, which could tighten the spread between 30-year mortgage and HELOC rates and tip the needle toward equity utilization via HELOCs for a subset of mortgage holders.

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 ICE Valuation 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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ICE Media Contact

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Source: Intercontinental Exchange

FAQ

What is the total tappable home equity reported by ICE in Q3 2024?

According to ICE's Q3 2024 report, total tappable home equity reached $11.2T, with homeowners having an average of $207K in tappable equity while maintaining a 20% equity stake.

How much home equity did homeowners withdraw in Q3 2024?

Homeowners withdrew $48B in Q3 2024, with $27B through second lien products and $21B through cash-out refinances, marking a two-year high in total equity withdrawals.

What are ICE's projections for HELOC rates by the end of 2025?

ICE projects HELOC rates could drop to the low 7% range by the end of 2025, assuming market expectations for an additional 1.5 percentage point Fed rate cut and current spreads hold true.

How does the current equity extraction rate compare to historical averages?

The current equity extraction rate of 0.42% is less than half the historical average of 0.92% seen in the decade before the latest Fed rate increases.