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Tappable Equity at Another All-Time High, But Declines in West May Mark Inflection Point

Home equity continued to climb overall in Q2, setting a tenth consecutive record high, but we may be nearing an inflection point as some of the nation’s most equity rich markets reported declines amid increasing headwinds.

We calculate homeowner equity levels by leveraging both our loan-level mortgage performance data as well as the Black Knight HPI. According to our latest findings, tappable equity – the amount available for homeowners to access while retaining at least 20% equity in their homes – hit another record high, climbing to $11.5T, up $500B (+5%) from Q1 and $2.3T (+25%) from the same time last year. Equity growth slowed, however, as home price appreciation began to moderate, with some of the hottest markets even posting equity declines amid rising interest rates and affordability concerns.

All in, 11 of the nation’s 50 most equity-rich markets posted declines in Q2, all of which are in the western U.S., including eight in the state of California alone. In total, California, which leads the nation with $3.5T (30.5%) of all tappable equity, saw a decline of $155B (4.2%) in Q2.

Four of the five most equity-rich markets, all on the West Coast, saw equity decline in Q2. San Jose, Calif., experienced the strongest pull back, with tappable equity falling by $55B (-12%). Tappable equity in Seattle fell by $38B (-10%), San Francisco, $42B (-5%) and Los Angeles $36B (-3%). San Diego, which ranks seventh in tappable equity, also experienced a 5% decline ($15.9B).

At the end of Q2, the average U.S. homeowner had $216,900 in tappable equity, up $9.7K (5%) in the quarter and $43.4K (25%) from the same time last year. Meanwhile, total market leverage for U.S. borrowers dropped below 42% for the first time since we began tracking the metric in 2004.

With 73% of equity held by borrowers who have locked in first lien interest rates below 4% (half have rates below 3.5%), borrowers may be reticent to access their equity via refinancing. As a result, we expect to see more homeowners turning toward second lien home equity products.

We are watching this trend closely and will report the latest on equity withdrawals in next month’s Mortgage Monitor.


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