The level of mortgage homeowners with tappable equity has reached a record peak, but tax code changes could have an impact on this market, according to a data analysis from Black Knight Inc.
“As of the end of the third quarter of 2017, 42 million homeowners with a mortgage now have an aggregate of nearly $5.4 trillion in equity available to borrow against,” said Ben Graboske, Executive Vice President of Black Knight Data & Analytics. “That is an all-time high, and up more than $3 trillion since the bottom of the market in 2012. Over 80 percent of all mortgage holders now have available equity to tap, whether via first-lien cash-out refinances or home equity lines of credit (HELOC).”
Graboske also noted that the number of underwater borrowers declined by 800,000 over the first nine months of 2017, a 37 percent evaporation in negative equity since the start of the year. Only 2.7 percent of homeowners with a mortgage, or about 1.36 million borrowers, owed more than their home is worth, the lowest such rate since 2006. And 36 states and 70 percent of the nation’s major metro areas have surpassed pre-recession home price peaks, although 43 of the nation’s 100 largest markets have yet to reach the high points of the past decade.
However, Graboske warned that recent tax code changes could have an impact on the HELOC market.
“We’ve noted in the past that as interest rates rise from historic lows, HELOCs represented an increasingly attractive option for these homeowners to access their available equity without relinquishing interest rates below today’s prevailing rate on their first-lien mortgages,” he said. “However, with the recently passed tax reform package, interest on these lines of credit will no longer be deductible, which increases the post-tax expense of HELOCs for those who itemize. While there are obviously multiple factors to consider when identifying which method of equity extraction makes more financial sense for a given borrower, in many cases, for those with high unpaid principal balances who are taking out lower line amounts, the math still favors HELOCs.”