U.S. homeowners are sitting on a record amount of equity, but higher interest rates over the past two years have made them reluctant to tap into it. That is finally starting to change.
In the third quarter of this year, mortgage holders withdrew $48 billion of home equity, according to ICE Mortgage Technology — the largest volume in the two years since the Federal Reserve started hiking its benchmark interest rate. While mortgage rates don’t exactly follow the Fed’s rate, home equity lines of credit, or HELOCs, are tied to it. The Fed cut its rate by a half percentage point in mid-September.
Despite the bump, homeowners are still being pretty cautious.
They are sitting on a little over $17 trillion in total equity collectively. Roughly $11 trillion of that is tappable, meaning homeowners could borrow on it as long as 20% equity would remain in the home, as most lenders require. The average homeowner now has $319,000 of equity in their home, of which $207,000 is tappable.
In the third quarter, homeowners withdrew just 0.42% of all tappable equity, less than half the rate seen in the decade leading up to the Fed hikes.
“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,” said Andy Walden, ICE vice president of research and analysis, in a release.