Sitting on 91 Trillion in Tappable Equity Homeowners Are Cashing Out

There’s an upside to surging home prices. The average mortgage holder gained $20,000 in home equity in the second quarter of 2021 alone.

That amounts to a kitchen remodel or a rooftop solar system, earned in just three months.

According to Black Knight’s Mortgage Monitor Report, U.S. homeowners collectively gained $1 trillion in tappable equity in the second quarter to reach an all-time high of $9.1 trillion. Tappable equity is the amount of home equity homeowners can borrow against while maintaining a 20% stake in their homes.

The average homeowner is now sitting on $173,000 in tappable equity. As a result, more homeowners are pulling cash out of their homes. Black Knight reported 1.1 million cash-out refinances in the second quarter, the largest volume for a single quarter in nearly 15 years.

The window is closing for cash-out refinance

Homeowners took advantage of increased home equity and low interest rates in the second quarter, withdrawing more than $63 billion in equity.

With even more equity and lower interest rates, the third quarter may serve as the last call for the cash-out refinance frenzy. According to the Freddie Mac Primary Mortgage Market Survey (PMMS), the average 30-year fixed mortgage has consistently been lower in the third quarter than the second quarter.

However, the Federal Reserve is poised to announce a taper plan at its September 21-22 meeting, which would likely put upward pressure on mortgage rates. For some homeowners, a cash-out refinance may still pencil out, even at a slightly higher rate. Others, however, may need to consider other options to tap into their home equity, such as a Home Equity Line of Credit (HELOC).

“A rising tide lifts all boats”

The surge in tappable equity is a benefit to all homeowners. While many are using cash-out refinances to fund home improvement projects (and further increase the value of their home), others are finding increased home equity especially valuable in a tight spot.

“Some 98% of homeowners in forbearance now have at least 10% equity in their homes” said Black Knight Data & Analytics President Ben Graboske. “This is a drastically different dynamic than during the worst of the Great Recession, when more than 40% of all mortgage holders had less than 10% equity and 28% were fully underwater.”

Having a strong position of equity may help homeowners in forbearance avoid foreclosure and distressed home sales -- which is good for them and economic recovery.

There are few benefits that spread equally across a group of people. In 2021, increased home equity for homeowners is one of them. And with a wave of millennials all but guaranteeing demand for the next several years, the home equity train may just be starting its journey.

Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.