Black Knight: Cash-Out Refis Hit Highest Level in 5 Years; California Prices Hit Tipping Point
Black Knight Financial Services, Jacksonville, Fla., said cash-out mortgage refinancings in August reached their highest level in five years.
The company’s Mortgage Monitor report said cash-out refinances rose by 68 percent from a year ago, as borrowers took advantage of still-low rates and newfound equity in their homes. Still, the report said the numbers were 80 percent below their 2005 peak. Borrowers pulled an average of $67,000 in equity through cash-out refis, matching levels last seen in 2006.
Black Knight Data & Analytics Senior Vice President Ben Graboske said borrowers have been capitalizing on the increased equity available to them. Total equity of mortgage holders has risen by nearly $1 trillion over the past year, while “tappable” equity stands at $4.5 trillion.
“What’s really interesting though, is that even after pulling out that equity, resulting average LTVs are at 68 percent, the lowest level we’ve seen in over 10 years,” Graboske said. “During this same time span, we’ve seen second lien HELOC lending rise, albeit at a lesser rate; that volume is up 40 percent from last year. However, as interest rates rise, we could see an increase in HELOC lending and corresponding slowing in first lien cash-out refis, as borrowers will likely want to hang on to lower rates for their first mortgage while still being able to tap available equity.”
Black Knight said more than 30 percent of cash-out refis occurred in California, followed by Texas at 7 percent. Fewer than 10% of cash-out refis leave the borrower with an LTV above 80 percent, also the lowest in over 10 years. More than one-third of all second-quarter rate/term refinances included term-length reductions, with borrowers saving an average of $136 per month in interest and principal.
The report also noted mortgage servicers’ retention of their customers’ business fell. Servicers are retaining just 26 percent of customers through the refinance process, down from 44 percent in 2011. In New York, servicers have just a 10 percent retention rate.
Black Knight reported the total U.S. loan delinquency rate at 4.83 percent, a month over month increase of 2.47 percent. The total foreclosure pre-sale inventory rate fell to 1.37 percent, a month over month drop of 2.17 percent.
States with the highest percentage of non-current loans were Mississippi, New Jersey, Louisiana, Maine and New York; states with the lowest percentage were Montana, South Dakota, Minnesota, Colorado and North Dakota. States with the highest percentage of seriously delinquent loans were Mississippi, Louisiana, Alabama, Rhode Island and Arkansas.
Meanwhile, Clear Capital, Reno, Nevada, reported this morning that home price appreciation in California, which had driven price growth in the West, could now put a “freeze” on the state’s sustained housing recovery.
The company’s monthly Home Data Index Market Report said affordability in high-priced California markets is “out of reach,” which could in turn dampen nationwide home price appreciation. Since 2012, the report said the churn of California price appreciation has buoyed the West, and helped support nationwide appreciation; but more recent data suggest cooling price appreciation across the state.
For example, the report said in the San Francisco area, between 2011 and 2015 the spike in prices has not been the result of increases in overall transactions, but rather, the tight supply is pushing prices on an upward trajectory placing the market even further out of reach for new buyers. In slower growth markets like Los Angeles, a mortgage payment requires upwards of 70 percent of a potential first-time home buyer’s income, quelling demand.
Clear Capital said since the first quarter, six California Metropolitan Statistical Areas have observed home price depreciation. While the West continues to lead in sustained gains, markets outside of California will need to work harder to defend the region’s top position, said Clear Capital Vice President of Research and Analytics Alex Villacorta.
“In bubble markets like San Francisco, San Jose and Los Angeles, growth has been unsustainably high in the last year fueled in large part by the white-hot rental market and low inventory environment,” Villacorta said. “Current prices in San Francisco County are far beyond any historic level on a real basis and are doing so with some of the lowest level of activity this county has seen.”
The report said the Midwest and South continue to ride the wave of the peak summer real estate season with quarterly growth rates at or above the national benchmark of 0.8 percent. The South ends the quarter at 0.8 percent growth, with the Midwest ahead at 0.9 percent. “Subsiding losses in the Southern region is a good sign for a region that has exhibited volatility in price trends,” Villacorta said.
Clear Capital said the Northeast continues to lag behind the rest of the nation in both quarterly (0.2 percent) and yearly (2.1 percent) growth. Villacorta said while most of the MSAs in the region are still experiencing positive quarterly growth, with the exception of Providence, R.I. (-0.8 percent), the rate of growth in markets such as Boston and New York are over double that for the rest of the region, driving down affordability.
“The strong continued growth in the Midwest, South and West, in particular the California Bay Area, suggests strong consumer and investor confidence has been seemingly unaffected by talk of looming interest rate hikes by the Fed,” Villacorta said. “However, if and when interest rates do rise, likely occurring by the end of 2015, it will be timed with a decrease in real estate market activity typical through the fall and winter seasons. This unfortunate pairing will most likely cause a slowdown in price growth for most markets, which already seems to be in motion across much of the country.”
