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.
But now, tappable equity totals are retreating, with Black Knight data revealing 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,” explained Ben Graboske, president of Black Knight’s Data Analytics division. “In California – where the average home price fell by $14,600 over the last six months of 2018 – tappable equity fell by more than $200 billion over that same time period, making up more than 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.
But recent data suggests limited borrowing power may not be too impactful, as fewer homeowners are accessing this source of wealth.
In fact, 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 explained. “The last time rates were at this level, cash-out withdrawals as a share of available equity were more than 25% above where they were in Q4 2018, suggesting we could see a noticeable rebound in homeowners tapping available equity via cash-out refis in coming months given the increased rate incentive to do so.”