The November 2024 ICE Mortgage Monitor Report shows some housing market thawing due to recent short-term rate cuts by the Federal Reserve, which is anticipated to increase equity-based lending volumes. The report contains ICE’s third-quarter homeowner-equity data for 2024, tracking both quarterly and annual growth in mortgage holders’ housing wealth.
Andy Walden, ICE Vice President of Research and Analysis, explains that while costs to borrow against home equity are higher than prior to the Fed’s shift to declining interest rates, that dynamic is poised to change within the next year.
“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,” Walden said. ““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."
Mortgage holders across the nation withdrew $48 billion of home equity in the third quarter of 2024 — the largest amount of quarterly equity withdrawn in the past two years. Of the home equity that was withdrawn, $27 billion in equity was withdrawn via second lien products and $21 billion was withdrawn via cash-out refinances, each hitting two-year highs.
"We did see a bump in equity withdrawals in Q3," Walden explained, "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.”
Yet, homeowners remain historically reluctant to borrow against their home equity with ICE’s report showing that only 0.42% of available tappable equity was withdrawn in the third quarter of 2024. This trails the 0.92% average home equity extracted in the decade preceding the last round of Fed increases.
“Second lien withdrawal rates are currently running more than a quarter below ‘normal’ and cash-out refi withdrawals are still down almost 70%,” Walden added. “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.”
Stubbornly high interest rates, which climbed to the high 7% range, have deterred homeowners from using their home equity and curtailed cash-out refinance activity. Plus, the average introductory rate on second lien home equity lines of credit (HELOCs) rose above 9.5%. But as the Federal Reserve began to cut short term interest rates in September, HELOC rates are expected to improve as well.
If there are additional rate cuts on the horizon, Walden believes it could make equity withdrawals more affordable and more attractive.
“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,” Walden said. “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.”
According to the latest ICE Mortgage Futures and industry consensus forecasts, mortgage rates are still not expected to see the full 1.5pp projected Fed rate decline flow through to 30-year offerings. As a result, that could tighten the spread between 30-year mortgage and HELOC rates, tipping the needle toward equity utilization via HELOCs for a subset of mortgage holders.
