Homeowners’ Equity Reached The Fourth-Highest Month On Record

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The Bureau of Labor Statistics released the July Consumer Price Index This Week in Real Estate which showed monthly inflation fell in line with economic forecasts. As a result, markets widely expect the Federal Reserve to pause its rate hikes at their September meeting. Homeowners’ equity reached the fourth-highest month on record to end the second quarter – $10.5 trillion of “tappable equity” -thanks to rising home prices and those that refinanced during the pandemic, securing ultra-low mortgage rates. Homeowners that refinanced over the last three years saved $42 billion cumulatively, according to Black Knight. Below are a few newsworthy events from the second week of August that influence our business: 

The Average American Homeowner Has Nearly $200,000 in Home Equity, Thanks to Rising House Prices. Homeowners’ equity hit $10.5 trillion in June, the fourth-highest month on record, up from $10.3 trillion in May, according to a Black Knight report released this week. (It reached $10.8 trillion at the end of 2022, a bumper year for house prices.). The Black Knight Home Price Index has also reached a record high. The company’s data goes back to 2000. “Tappable” equity – what is available for homeowners to borrow against while maintaining a 20% equity stake – climbed to $10.5 trillion in June and is within $434 billion or 4% of the 2022 “tappable equity” peak. The average mortgage holder had $199,000 in equity in June, up from $185,000 in the first quarter of the year, Black Knight said. Some 14 million homeowners refinanced during the pandemic and secured ultra-low mortgage rates, the New York Fed said. Homeowners who refinanced over the last three years saved $42 billion cumulatively, Black Knight added. On the flip side, only 344,000 homeowners are “underwater,” or owe more on their homes than their properties are worth. During the height of the Great Recession, more than 16 million homeowners were underwater on their mortgages, Black Knight added. Read the full story here.

Mortgage Rates Mysteriously Surge Back Toward Long-Term Highs. OK, it may be a bit of a stretch to consider today’s jump a “surge” as it wasn’t much bigger than some of the other increases seen in the past few weeks, but it was certainly mysterious. When it came to the potential for interest rate volatility, today’s main event was the release of the Consumer Price Index (CPI) for July. This is one of the major monthly economic reports that guide financial markets and the Fed in determining where interest rates should be. If inflation came out higher than expected, rates were likely to rise, but the data actually suggested the opposite. Despite the friendly inflation report, rates ended up rising somewhat abruptly in the afternoon. There are several potential scapegoats being discussed around the bond market campfire, but none of them aligned with the timing of the movement. When bonds lose enough ground over the course of the day, mortgage lenders can make mid-day adjustments to their rate offerings. This happened for almost every lender today – and more than once in many cases. The net effect is a 30yr fixed rate that is back near 7.125% for top tier scenarios. The less “top tier” the scenario (i.e., less than 25% equity or 760 credit score) quickly pushes that number into the mid 7’s. Read the full story here.

US Mortgage Delinquency Rates Fall to All-Time Low. U.S. mortgage delinquency rates fell to a record low in the second quarter due to a strong job market and low interest rates prevailing on most home loans despite the big jump in mortgage rates over the last two years, a report on Thursday said. Delinquency rates fell to 3.37% at the end of the second quarter, according to the Mortgage Bankers Association’s National Delinquency Survey, their lowest since the MBA began collecting data in 1979 and down from 3.64% year-on-year. Seriously delinquent loans, which are 90 days or more past due or in the process of foreclosure, fell to the lowest non-seasonally adjusted rate in 23 years at 1.61%. Economists are watching mortgage delinquency rates closely for signs of weakness amidst the Federal Reserve’s aggressive 525 basis point interest rate increase since March 2022, which increased the cost of borrowing across the board. While the MBA said many borrowers have been able to withstand surging mortgage costs in large part due to a resilient job market, most homeowners are also paying interest rates well below those charged on new loans. While the share of those paying such low rates is declining, many homeowners are opting to remain where they are rather than move and take on a new loan at current rates, which are approaching a 22-year high. Read the full story here.

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