After a year of historic home price gains, homeowners' tappable equity — the amount available for a mortgage-holder to access while retaining at least a 20% equity stake in their home — has hit yet another record high, Black Knight Inc. reported today.
According to Black Knight’s Data & Analytics division, tappable equity increased 35% in 2021, for an aggregate total of nearly $10 trillion. The $2.6 trillion gain is the largest annual increase on record — more than double 2020's prior high of $1.1 trillion — giving the average homeowner a $48,000 bump, for a total of $185,000 in available equity.
According to Black Knight Data & Analytics President Ben Graboske, the nearly half-billion-dollar increase in tappable equity in the fourth quarter of 2021 has also resulted in the lowest total market leverage on record.
"Home price appreciation over the course of 2021 was unlike anything that's come before, and the incredible growth we've seen in homeowner equity is testament to that fact," Graboske said.
"In fact,” he continued, “it's driven total market leverage down below 45% for the first time on record. And while we saw the rate of home-price growth begin to slow beginning in July 2021, that trend has since reversed — as has the modicum of improvement we'd started to see in inventory levels — making even further gains likely, at least in the near term.”
Black Knight said both its Home Price Index and its Collateral Analytics daily tracking data showed home-price growth reaccelerating as the year came to a close. Graboske noted that, “at a time of the year that typically sees little to no price movement, home prices increased by 0.84% last month, marking the largest December price growth on record.”
He added that the data also suggests that trend continued in January, “even as interest rates began to spike. The interplay between prices and rates has significantly impacted affordability and borrower buying power in recent weeks.”
According to Black Knight’s data, it now takes 25.8% of the median household income to purchase the average-priced home with 20% down and a 30-year mortgage, up from the 22.4% required at the end of the third quarter of 2021. Interest rate jumps in recent weeks have pushed this above the long-term, pre-Great Recession average payment-to-income ratio of 25%, the worst affordability levels since 2008, the company said.
“In response,” Graboske said, “our Optimal Blue rate-lock data shows homebuyers are increasingly choosing to pay more in points to buy down the rates on their mortgages to partially offset the effect of recent rate increases, further increasing the burden on today's homebuyers."
Black Knight also reported that the number of new homes for sale has run a deficit for 30 consecutive months. While the shortage of active listings improved from -63% in June 2021 to -55% in September, the deficit has begun to worsen, climbing back to -60% and trending in the wrong direction as of December.
In total, the U.S. housing market is currently short between 500,000-750,000 active listings when compared to 2017-19 December inventory levels, Black Knight said.
Rising rates have also affected refinance incentives, accelerating the shift to an equity-centric refi market, Black Knight said. “In the first weeks of 2022, the market has seen a population of 11 million high-quality refi candidates cut down to less than 6 million — a 45% reduction,” the company said.
Still, the company noted, while the 11 million refi candidates pales in comparison to the nearly 19 million just over a year ago, itl surpasses the average population of refi candidates during the 10-year span before the pandemic period.
“Analyzing the current distribution of first-lien interest rates alongside historical refinance pull-through rates and consensus 30-year rate forecasts, Black Knight estimates refi activity could pull back by more than 60% in 2022,” the company said. “While this would cut overall originations by a third from 2020-21, 2022 volumes would still be on the high end of the 2008-19 era, with a stronger mix towards purchase lending (55%-60%) and cash-out activity.”
