Home equity and tappable equity declined in the third quarter because the value of home prices declined in some of the most expensive housing markets in the U.S. Tappable equity is the amount available for homeowners to borrow against before hitting a maximum 80 percent combined loan-to-value ratio.
“After seeing a significant slowdown in its growth from the first to second quarters of 2018, the amount of tappable equity fell by $140 billion in Q3 2018,” said Ben Graboske, executive vice president of Black Knight’s the data and analytics division of Black Knight. “That is the first decline we’ve seen since the housing recovery began, and its cause can be traced directly to softening home prices in some of the nation’s most expensive – and equity- rich – markets. Indeed, tappable equity fell in 60 of the 100 largest markets, including 12 of the top 15.”
Three markets in California alone, San Jose, San Francisco and Los Angeles, accounted for 55 percent of the total net decline, according to the Mortgage Monitor Report from Black Knight. If Seattle is included, then four markets represented two-thirds of the net reduction in tappable equity. All were areas where home price growth has far outpaced the national average in recent years, but in which prices fell in Q3 2018 – from as little as one percent in Los Angeles, to 4.6 percent in San Jose.
“Of course, there is still $9.8 trillion in total home equity in the market, some $5.9 trillion of which is tappable. That’s $571 billion more than in Q3 2017, and tappable equity remains near an all-time high. It’s also important to remember that third quarters are relatively flat as far as home prices are concerned, and that tappable equity is up on an annual basis in 98 percent of major metro areas,” said Graboske.
An analysis of listings on mortgaged properties suggests that homeowners are reluctant to put their current homes on the market due to ‘rate lock’ or ‘affordability lock’ may still be holding down available inventory by about six percent. Constraining the supply of available homes, however, might be countering what might otherwise be greater downward pressure on home prices.
Other results from the quarterly equity data showed that just 1.8 percent of homeowners remain underwater, owing more on their mortgages than their homes are worth. For those with equity, the average homeowner with a mortgage has $191,000 in equity in his or her home. Among those with tappable equity, the average amount available to borrow against is $136,000. Over 50 million homeowners with mortgages have some amount of equity in their home, 43.6 million of which have tappable equity, a decline of around 272,000 from this time last year.
