Across the country, homeowners’ tappable equity declined for the first time since the beginning of the housing recovery, a change driven by price drops in some of the nation’s most expensive markets, according to a new report from Black Knight.
Black Knight – an integrated software, data and analytics company – released its latest Mortgage Monitor Report on Dec. 10, based on data as of the end of October 2018. Their analysis showed quarterly declines in both total equity and tappable equity, the amount available for homeowners with mortgages to borrow against before hitting a maximum 80 percent combined loan-to-value (LTV) ratio.
In good news for Idaho, the Gem State had one of the country’s lowest rates of non-current loans, which combine foreclosures and delinquencies as a percent of active loans. North Dakota, Washington, Oregon and Colorado also fared well on non-current loans, while Mississippi, Louisiana, Alabama, West Virginia and Arkansas had the worse rates.
Nationwide, the tappable equity figures saw a significant slowdown in growth from the first to second quarters of 2018, then fell by $140 billion in Q3 2018.
Ben Graboske, executive vice president of Black Knight’s Data & Analytics division, explained that the decline is being driven by home prices pulling back on a quarterly basis in some of the most expensive housing markets.
“That is the first decline we’ve seen since the housing recovery began, and its cause can be traced directly to softening home prices in some of the nation’s most expensive – and equity-rich – markets,” said Graboske.
Tappable equity fell in 60 of the 100 largest markets, including 12 of the top 15. Four major West Coast markets – San Jose, San Francisco, Los Angeles and Seattle – accounted for two-thirds of the net reduction in tappable equity. All were areas where home price growth has far outpaced the national average in recent years, but in which prices fell in Q3 2018 – from as little as one percent in Los Angeles, to a 4.6 percent drop in San Jose.
Still, tappable equity remains near an all-time high, with $9.8 trillion in total home equity in the market, some $5.9 trillion of which is tappable – $571 billion more than in Q3 2017.
“It’s also important to remember that in general third quarters are relatively flat as far as home prices are concerned, and that tappable equity is up on an annual basis in 98 percent of major metro areas,” Graboske said. “But the fact remains that affordability concerns are beginning to have an impact on home prices, particularly in more expensive markets, and as a result, on homeowner equity as well.”
While for-sale inventory is up on an annual basis for the first time in four years, an analysis of listings on mortgaged properties suggests that homeowners reluctant to put their current homes on the market due to “rate lock” or “affordability lock” may still be holding down available inventory by about 6 percent, Graboske said.
“By constraining the supply of available homes, this in turn may be countering what might otherwise be greater downward pressure on home prices,” he added.
Other results from the quarterly equity data showed that just 1.8 percent of homeowners remain underwater, owing more on their mortgages than their homes are worth. For those with equity, the average homeowner with a mortgage has $191,000 in equity in his or her home. Among those with tappable equity, the average amount available to borrow against is $136,000. In total, over 50 million homeowners with mortgages have some amount of equity in their home, 43.6 million of which have tappable equity – a decline of approximately 272,000 from this time last year.
Other key results include:
- Total U.S. loan delinquency rate: 3.64%
- Month-over-month change in delinquency rate: -8.19%
- Total U.S. foreclosure pre-sale inventory rate: 0.52%
- Month-over-month change in foreclosure pre-sale inventory rate: -0.54%
- States with highest percentage of non-current* loans: MS, LA, AL, WV, AR
- States with lowest percentage of non-current* loans: ND, ID, WA, OR, CO
States with highest percentage of seriously delinquent** loans: MS, LA, AL, AR, TN
*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.
**Seriously delinquent loans are those past-due 90 days or more.
Totals are extrapolated based on Black Knight’s loan-level database of mortgage assets.