The collective amount of equity available for homeowners to tap reached a record high last year, climbing above $6 trillion as home prices continued to appreciate at a steady clip. According to Black Night data, tappable equity totals are now retreating. A recent Black Knight study revealed a second consecutive quarter of declines as home price growth slows in many of the most expensive markets.
Tappable equity totaled $5.7 trillion in the fourth quarter of 2018 – down by $228 billion from the previous quarter. According to the report, California is largely to blame, as the home price slowdown in that state accounted for more than half of the equity level reduction nationwide.
“The decline is being driven by falling home prices in some of the nation’s most expensive markets,” said Ben Graboske, president of Black Knight’s Data & Analytics division. He explained that California is responsible for 60% of the total national decline.
Homeowners with more than 20% equity in their homes experienced most of the decline, but Black Knight said the loss does not indicate a market in stress but simply represents reduced borrowing power. Recent data suggests limited borrowing power may not be too impactful, as fewer homeowners are accessing this source of wealth. In Q4 2018 just 1% of available equity was tapped – the lowest share since 2012.
Homeowners in the last quarter of 2018 accessed just $61 billion of their equity, the lowest share in nearly three years. This represents a 16% decline in equity access from the previous quarter, Black Knight said.
Both HELOCs and cash-out refis declined in Q4, likely a result of rising interest rates. Graboske said that HELOC use has been declining steadily for nearly three years thanks to rising short-term rates, but cash-out refis may see a spike in activity on the horizon.
“Heading into Q2 2019, the 30-year fixed rate stands at 4.3%,” Graboske stated. Because of this, Graboske suggests that we could see a noticeable rebound in homeowners tapping available equity via cash-out refis in coming months.