ICE Mortgage Monitor: Tappable Equity Hits Record $11.5 Trillion
(Illustration courtesy of ICE)
Mortgage holders’ equity levels continue to reach new heights, according to Intercontinental Exchange, Inc.
The August 2024 ICE Mortgage Monitor Report said there is more outstanding mortgage debt today than at any point in history, but noted overall market leverage remains near record 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,” ICE Vice President of Research and Analysis Andy Walden said.
Walden said total cumulative debt leverage–essentially a loan-to-value ratio for the entire mortgage market–equals 44.1% of underlying home values, the third-lowest leverage ratio 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,” he said.
The report found that nine out of 10 of mortgage holders (48.5 million) 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,” ICE said. “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–32 million–mortgage holders have at least $100,000 in tappable equity; 4.6 million have at least $500,000 and 1.2 million have $1 million or more, the report said. “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 report said.
“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.”
Walden noted 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,” he said.
