Intercontinental Exchange, Inc, colloquially known as ICE, has released its December 2023 ICE Mortgage Monitor Report, based on the company’s mortgage, real estate, and publicly-recorded sales data sets.
Rising home prices, though they have cooled in recent months, have returned tappable equity to near its 2022 peak.
This has implications for both equity lending as well as performance-related risk among active mortgages, as ICE VP of Enterprise Research Andy Walden explains.
“Despite the resurgence in tappable equity among U.S. mortgage holders, elevated interest rates are making homeowners reluctant to extract that wealth,” Walden said. “Indeed, in recent quarters, equity withdrawal rates have been running at less than half their long-run averages. Mortgage holders extracted a mere 0.41% of tappable equity available at the beginning of Q3. That’s some 55% below the average withdrawal rate seen in the 12 years leading up to the Fed’s most recent tightening cycle. That’s equivalent to $54 billion – $250B over the last 18 months – in ‘missing’ withdrawals that might have otherwise stimulated the broader economy.”
According to ICE, in addition, rising equity levels are contributing to low default and foreclosure rates in today’s market. As Walden notes, any specter of a potential wave of foreclosures must be tempered by a recognition of borrowers’ generally strong equity positions – including the most seriously delinquent among them.
“Though they hit an 18-month high in October, foreclosure starts remain 35% below pre-pandemic norms. Lenders and servicers have many more options for working with borrowers to avoid foreclosure today than at almost any point in the past. Just to illustrate the scope: 70% of loans currently three or more payments past due are protected from foreclosure by ongoing loss mitigation efforts. Further, 58% of these seriously delinquent mortgage holders hold more than 20% equity stakes in their homes.
“Strong equity cushions not only provide borrowers incentive to work with their servicers to return to making mortgage payments, they also open up other options, such as salvaging earned equity with a traditional home sale rather than going through foreclosure. The more the industry can do to educate, and update, borrowers as to their equity positions, the better. Loss mitigation can be much more successful when a borrower can make educated and informed decisions, fully aware of the options available to them.”
Diving deeper into the data, cash-out accounted for 92% of all refinances in the third quarter of 2023, with borrowers withdrawing an average of $104,000, up from $65,000 two years ago. Purchase loans continue to dominate, driving 86% of third quarter activity and are expected to account for 75% of all mortgage lending by the end of next year.
By the numbers, as highlighted by ICE:
Despite clear signs of slowing, home prices hit yet another seasonally adjusted high in October, with unadjusted annual growth rising to +4.6%, up from +4.2% in September
- Recent home price gains have returned tappable equity to within 3% its 2022 peak, contributing to a modest increase in equity withdrawals in Q3
- Just 0.41% of tappable equity available at the beginning of the quarter was withdrawn in Q3, some 55% below the average withdrawal rate seen from 2010-2021
- An estimated $54B in equity withdrawals were forgone in Q3 as rising interest rates increased the cost of equity utilization, with an aggregate $250B missing over the last 18 months
- Despite compressed volumes, cash-outs continue to fuel what is left of the refinance market accounting for 92% of Q3 activity, with borrowers withdrawing a record $104K on average
- Purchase lending continues to dominate the market overall, driving 86% of all first lien lending in Q3, with roughly 75% of 2024 originations expected to come from purchase loans
- Rising rates continue to put pressure on homebuyers, with debt-to-income (DTI) ratios on purchase loans hitting multiyear highs in October, according to ICE Market Trends data
- Data also suggests tightening lending criteria, as credit scores for conventional, FHA and VA purchase loans all hit series highs, with FHA credit scores up 14 points year over year
- While foreclosure starts rose in October, near-term risks remain muted due to a combination of historically low serious delinquency rates and strong equity positions among such loans
Click here to see Ice’s Mortgage Monitor in its entirety.