Rising home prices managed to outpace an all-time high of $13.8 trillion in mortgage debt, pushing mortgage holder equity to a new high of $17.6 trillion in the second quarter of 2024. On top of that, tappable home equity reached a new high of $11.5 trillion, a 4% gain compared to the first quarter and a 9.2% year-over-year increase, according to new data from ICE Mortgage Technology.
The ICE Mortgage Monitor report for August showed that 32 million mortgage borrowers in the U.S. — roughly three in five — now have at least $100,000 in tappable home equity, which refers to the amount of equity they can access while maintaining a stable 20% equity “cushion.”
There are 4.6 million mortgage holders who have access to $500,000 or more in tappable equity, while nearly 1.2 million mortgage holders have access to $1 million or more. Those who have higher equity levels also tend to maintain lower rates on their first-lien mortgages.
“Outstanding mortgage debt, including both first and second liens, hit an all-time high in June, but growth in home prices has outpaced that gradual rise in debt,” Andy Walden, vice president of research and analysis at ICE, said in the report. “Total cumulative debt leverage — essentially a loan-to-value ratio for the entire mortgage market — is equivalent to 44.1% of underlying home values, the third lowest leverage ratio we’ve seen in the past 20-plus years.“
Rising home prices continue to benefit the wealth of existing homeowners, which has pushed tappable equity to “its highest level ever,” Walden added.
As expectations of an impending Federal Reserve rate cut grow, the relatively anemic home equity lending space could start to see more activity due to a more direct impact that short-term rates have on home equity offerings, Walden said.
“[L]enders would do well to prepare,” he said. “The ability to originate and service home equity loans alongside first lien mortgages will be key — to say nothing of using data-driven portfolio analysis to identify potential second lien customers.”
Fewer than 325,000 mortgage holders are underwater on their loans, which equates to a rate of roughly 0.6% of active loans being in a negative equity position. Another 4.2% of mortgage holders have less than 10% equity in their homes, according to the report.
From a performance perspective, the U.S. mortgage delinquency rate (3.9%) increased by 45 basis points in June to the second-highest level in 18 months, but foreclosure starts and prepayment activity fell by 6.2% and 7.6%, respectively.
