ICE Data Reveals That Equity Withdrawals Hit 2yr High In Q3, Could See Boost As Fed Cuts Rates

Intercontinental Exchange, Inc. (NYSE:ICE), a global provider of technology and data, released its November 2024 ICE Mortgage Monitor Report, based on the company’s robust mortgage, real estate and public records data sets. Here’s what it found:

This month’s Mortgage Monitor dives deep into ICE’s latest Q3 2024 homeowner equity data, reporting on both quarterly and annual growth in mortgage holders’ housing wealth. Though 30-year interest rates remain volatile, recent and anticipated short-term rate cuts by the Federal Reserve have the potential to positively impact equity-based lending. As Andy Walden, ICE Vice President of Research and Analysis explains, though the cost to borrow against a homeowner’s equity is notably higher than prior to the Fed’s most recent tightening cycle, this dynamic is poised to change in the year ahead.

“While growth in total mortgage holder equity is slowing along with home prices, Q3’s $17.2T, up 5% from last year, represents another seasonally adjusted record high,” said Walden. “Of that total, $11.2T is available to homeowners with mortgages to borrow against while maintaining a 20% equity stake in their homes. On average, that works out to roughly $207K in tappable equity per homeowner. And we did see a bump in equity withdrawals in Q3, with cash-out refi extractions rising on what had been downwardly trending 30-year rates and second-lien home equity products getting a boost from rate cuts late in the quarter.”

In total, U.S. mortgage holders withdrew $48B of home equity in the third quarter. This was the largest such equity withdrawal volume in the two years since the Federal reserve first initiated their latest tightening cycle. Both the $27B equity withdrawn via second lien products and the $21B withdrawn via cash-out refinances also marked their own individual two-year highs in Q3. Still, homeowners remain historically reluctant to borrow against their home equity. Just 0.42% of available tappable equity was withdrawn in Q3 2024, well below the 0.92% average extraction rate in the decade preceding the latest round of Fed increases.

“Despite a two-year high for equity withdrawals in the third quarter, homeowners are still tapping their housing wealth at less than half the rate they have historically,” Walden added. “Second lien withdrawal rates are currently running more than a quarter below ‘normal’ and cash-out refi withdrawals are still down almost 70%. Over the past 10 quarters homeowners have extracted $476B in equity, exactly half the extraction we’d expect to see under more normal circumstances. That equates to nearly a half a trillion untapped dollars that hasn’t flowed back through the broader economy.”

Elevated interest rates have been a deterrent to homeowner equity utilization in recent quarters, as 30-year mortgage rates climbed at times into the high 7% range, curtailing cash-out refinance activity, and the average introductory rate on second lien home equity lines of credit (HELOCs) rose above 9.5%. However, the Federal Reserve recently began to cut short term interest rates, to which HELOC rates are closely pegged, with additional cuts expected on the horizon. As Walden points out, this could make equity withdrawals both more affordable and more attractive.

“Since the Fed began its latest cycle of rate hikes, the monthly payment needed to withdraw $50K via a HELOC more than doubled, from as low as $167 per month back in March 2022 to $413 in January of this year,” Walden said. “The market’s currently pricing in another 1.5 percentage points of cuts through the end of next year. If that comes to fruition, and current spreads hold, it’ll have positive implications for both new equity lending as well as for consumers with existing HELOCs, with the payment on a $50K withdrawal falling back down below $300 per month. While still notably above the 20-year average of $210, that represents a more than 25% reduction from recent highs. Given borrowers’ recent sensitivity to even slight rate drops, this could serve to entice additional HELOC utilization, especially with mortgage holders sitting on record stockpiles of equity and locked into their current homes via low first lien rates.”

Based on the latest ICE Mortgage Futures as well as industry consensus forecasts, mortgage rates are not expected to see the full 1.5pp projected Fed rate decline flow through to 30-year offerings, which could tighten the spread between 30-year mortgage and HELOC rates and tip the needle toward equity utilization via HELOCs for a subset of mortgage holders.