– Despite record-setting tappable equity growth, share of total equity withdrawn hits four-year low In Q1 2018
July 9, 2018 Data & Analytics
– Tappable equity grew by more than $380 billion in Q1 2018, the largest single-quarter growth since Black Knight began tracking the metric in 2005
– The $5.8 trillion in total tappable equity held by US homeowners with mortgages is the most ever recorded, and 16% above the mid-2006 peak
– The average mortgage holder gained $14,700 in tappable equity over the past year and has $113,900 in total
– Despite the increase in available equity, the amount withdrawn in Q1 2018 fell nearly 7.0% from Q4 2017
– Just 1.17% of available equity was tapped in Q1 2018, the lowest share since Q1 2014, and the second lowest quarterly share since the beginning of the housing recovery
– $35 billion withdrawn via home equity lines of credit (HELOCs) in Q1 2018 marked a two-year low, likely driven by the increasing interest rate spread between first-lien mortgages and HELOCs
The Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based on data as of the end of May 2018. This month, the company looks again at tappable equity, or the share of equity available for homeowners with mortgages to borrow against before reaching a maximum total combined loan-to-value (LTV) ratio of 80%. Despite the record-setting growth in such equity seen in the first quarter of 2018, homeowners are withdrawing equity at a lower rate than in the past. As Ben Graboske, executive vice president of Black Knight’s Data & Analytics division explained, although total equity withdrawn by dollar amount has increased slightly since the same time last year, the rate of growth pales in comparison to that of tappable equity. “In Q1 2018, homeowners with mortgages withdrew $63 billion in equity via cash-out refinances or HELOCs,” said Graboske. “That represents a slight one% increase from the same time last year, despite the fact that the amount of equity available for homeowners to borrow against increased by 16% over the same time period. Collectively, American homeowners now have $5.8 trillion in tappable equity available, yet only 1.17% of that total was withdrawn in the first quarter of the year. That’s the lowest quarterly share in four years, and the second lowest since the housing recovery began six years ago. Somewhat surprisingly, even though rising first-lien interest rates normally produce an increase in HELOC lending, the volume of equity withdrawn via lines of credit dropped to a two-year low as well.
“One driving factor in the decline of HELOC equity utilization is likely the increasing spread between first-lien mortgage interest rates – which are tied most closely to 10-year Treasury yields – and those of HELOCs – which are more closely tied to the federal funds rate. As of late last year, the difference between a HELOC rate and a first-lien rate had widened to 1.5%, the widest spread we’ve seen since we began comparing the two rates 10 years ago. The distance between the two has closed somewhat in Q2 as 30-year mortgage rates have been on the rise, which does suggest the market remains ripe for relatively low-risk HELOC lending expansion. Still, increasing costs in the form of higher interest rates do appear to have impacted homeowners’ borrowing decisions in Q1 2018. We should also remember that the Federal Reserve raised its target interest rate again at its June meeting, which will likely further increase the standard interest rate on HELOCs in Q3 2018. Black Knight will continue to monitor the situation moving forward.” The data also showed that tappable equity increased by more than $380 billion in Q1 2018, the largest single-quarter growth since Black Knight began tracking the metric in 2005. On an annual basis, total tappable equity increased $820 billion, a 16.5% increase over the prior 12 months. The $5.8 trillion in total available tappable equity is 16% higher than the peak seen during the pre-recession peak in 2006. Nearly 80% of the nation’s tappable equity is held by homeowners with first-lien interest rates at or below 4.5%, with 60% of the total being held by those with current rates below 4.0%. The average mortgage holder gained $14,700 in tappable equity over the past year and has $113,900 in total available equity to borrow against.
As was reported in Black Knight’s most recent First Look news release, other key results include:
– Total US loan delinquency rate: 3.64%
– Month-over-month change in delinquency rate: -0.84%
– Total US foreclosure pre-sale inventory rate: 0.59%
– Month-over-month change in foreclosure pre-sale inventory rate: -3.30%
– States with highest percentage of non-current loans: MS, LA, AL, WV, FL
– States with lowest percentage of non-current loans: MN, WA, ND, OR, CO
– States with highest percentage of seriously delinquent loans: MS, FL, LA, AL, TX
Oil prices climb on global demand
Oil prices rose on Monday as increased global demand and US efforts to shut out Iranian output using sanctions outweighed drilling data suggesting US shale production would climb. Benchmark Brent was up 70 cents at $77.81 a barrel by 1150 GMT. US crude was unchanged at $73.80. “Oil prices are starting the week on the front foot in anticipation of reduced supplies from Iran after US sanctions,” said Stephen Brennock, analyst at London brokerage PVM Oil Associates. The United States says it wants to reduce oil exports from Iran, the world’s fifth biggest oil producer, to zero by November, in a move that will oblige other big producers such as Saudi Arabia to pump more. But Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries have little spare capacity and oil demand has risen faster than supply over the last year.
Chicago Targets ‘Zombie Housing’ for Renewal, Block by Block
In 2011, Chicago officials created the Micro Market Recovery Program (MMRP) to jump start individual blocks that had a high rate of vacant buildings due to foreclosures. MMRP sought to transform those abandoned, dilapidated buildings into affordable homes for renters or first-time homebuyers. It would help to re-settle diverse communities and attract businesses. Chicago had already spent about $169.2 million from the Housing and Urban Development’s Neighborhood Stabilization Program (NSP) for areas hit hardest by foreclosures. MMRP would take the next step and include several community groups, such as Local Initiatives Support Corporation Chicago – known as LISC Chicago – to attract investors and families, according to the Chicago Department of Planning and Development. MMRP has reoccupied nearly 1,000 buildings, including about 2,900 units, in Englewood, Auburn Gresham, West Pullman, Woodlawn and other neighborhoods. Also, more than 400 families received help with loans or obtained financial assistance to keep their existing homes. “As long as the demand and the need are there, we will continue,” says David Reifman, commissioner of the Chicago Department of Planning and Development. “Right now, our recovery is steady but not complete.”
From 2011 through December 2018, about $12.8 million will be invested in MMRP, mostly from the city’s budget and grants from various nonprofits. The amount also includes about $3 million from the Illinois attorney general’s office settlement with major banks accused of questionable lending practices related to the foreclosure crisis. “We wanted to focus our limited resources on key areas to bring back whole blocks at a time,” Reifman says. Since then, foreclosure filings decreased by double digits in the MMRP zones from 2011 through 2016. The targeted areas in the north region had a 67.6% reduction. The middle region had a 66.1% decrease, while the south region had a 25.8% decrease. In comparison, foreclosure filings citywide decreased by 69.4% during the same period. Housing prices also increased in the MMRP communities, some as much as 33.1%, according to the Institute for Housing Studies at DePaul University. The improvements are due to MMRP, community involvement, families returning to the area and an improving economy, says Geoff Smith, the institute’s executive director. “Overall, (the city’s) strategy is one that’s important,” Smith says. “It targets small areas and helps the neighborhoods recover. When there are limited resources, you need to concentrate it and then target the areas to have some level of success.” Also, providing an affordable mortgage, financial assistance, grants, and some forgivable loans are part of the equation, community experts say. MMRP aims to transform tough, poor neighborhoods, such as Englewood, where high-end grocer Whole Foods opened about two years ago. And more commercial development is planned, says Jack Swenson, program officer for LISC Chicago, which partners with the city on housing and other projects. LISC Chicago develops a relationship with residents on a targeted block, finds out their needs and concerns, and works on filling vacant lots and acquiring vacant buildings. It’s a process that ultimately leads to a stronger foundation, Swenson says. “Crime is a reality in every neighborhood and we think we sometimes forget how important a community is,” Swenson says. “In many neighborhoods across the city, it’s the people’s commitment to their community that outweigh the obstacles and they still choose to reinvest.” Besides Chicago, NSP has distributed roughly $6.8 billion nationwide over the last 10 years to cities hit hardest by foreclosures, says Brian Sullivan, HUD spokesman in Washington, D.C. “It’s hard to say if the foreclosure crisis is over,” Sullivan says. “They say all housing is local and the foreclosure crisis ended sooner in some areas rather than others. But who says it’s really over?”
Dallas received about $8 million in NSP funds to help the southern area most affected during the foreclosure crisis. Then Dallas officials in 2015 created the Neighborhood Plus Plan, a citywide revitalization program to help troubled neighborhoods. Dallas also has invested about $75.3 million in housing projects since 2009, says Dallas spokesman Corbin Rubinson. The nation’s capital received about $17.4 million in NSP funds for its struggling neighborhoods. Then in December 2017, Washington’s Property Acquisition and Disposition Division created the Vacant to Vibrant DC program to quickly dispose of or sell vacant properties. Washington budgeted about $3 million this year for both programs, says Polly Donaldson, director of the city’s Department of Housing and Community Development. Los Angeles received about $143 million in NSP funds to rebuild neighborhoods. In 2010, the city also adopted a Foreclosure Registry ordinance to further protect neighborhoods from inadequately maintained and abandoned foreclosed properties or face penalties, says Douglas Swoger, director of the asset management division of the Los Angeles Housing + Community Investment Department. What cities spend on such programs also is difficult to compare, because of the wide range of services, the geography involved, the number of vacancies and other factors, says Alan Mallach, senior fellow and researcher for the Center for Community Progress in Washington, D.C. Thousands of cities have neighborhood revitalization programs, which may range from a modest effort to give elderly homeowners grants to fix their homes to a multifaceted strategy. Some notable programs are in Minneapolis and Baltimore, Mallach says. Some neighborhood revitalization work also is done by nonprofit organizations and not by city governments. Some include Youngstown Neighborhood Development Corporation and Cleveland Neighborhood Progress in Ohio, Mallach says. Chicago’s MMRP has made tremendous progress and offers a cross-sector effort between the city, nonprofit community groups, financial institutions and others, says Maurice Jones, president and CEO of LISC, based in New York with 32 offices nationwide. LISC is a MMRP partner with Chicago. “It’s a recipe that produces results and is sustainable,” Jones says.
US Treasury yields edge higher as trade drama lingers
US government debt prices fell into the red at the start of the trading week. The yield on the benchmark 10-year Treasury note was higher at around 2.850% at 5:40 a.m. ET, while the yield on the 30-year Treasury bond was in the black at 2.953%. Bond yields move inversely to prices. Markets have been given a boost following the publication Friday of the latest jobs report, which revealed that the US economy added 213,000 jobs in June, beating expectations. This positive sentiment seen across markets is in spite of concerns surrounding trade and Brexit. The US placed $34 billion of tariffs on Chinese goods on Friday, a move that triggered China to hit back with its own set of duties. And the U.K.’s Brexit Secretary David Davis announced late Sunday that he was resigning from his post, as he wasn’t prepared to be “a reluctant conscript” to Prime Minister Theresa May’s plans to leave the European Union (EU). On Friday, May had reached a Brexit compromise with her cabinet, persuading ministers to back her intention to press for “a free trade area for goods” with the EU. On Monday, Dominic Raab was appointed as the new Brexit Secretary. On Monday, consumer credit data is due out at 3 p.m. ET, while the Treasury will auction $48 billion in 13-week bills and $42 billion in 26-week bills. The size of a four-week bill, set to be auctioned Tuesday, will also be announced.
Has the housing market in Detroit finally recovered?
At this point, most observers are aware of the plight of Detroit in the wake of the crisis. The city’s economy and housing market both went in the tank as the crisis wore on. Eventually, the city itself declared bankruptcy, marking the largest municipal bankruptcy in the history of the country. In the years since the crisis, the city has been on the rebound, with government funds and private capital helping to lead the way. And now, it appears that the city’s housing market is on the precipice of a full recovery. Last week, Amherst Capital released its latest market commentary, the Amherst Home Price Index, which showed that Detroit is now within mere decimal points of a total comeback. “Based on the Amherst Home Price index, we find that Detroit is finally within 1% of its pre-crisis peak,” Amherst noted in its report. “This was on the back of a strong 7.2% year-over-year growth in April 2018 and we fully expect it to reach new record in the next couple of months. When that happens, 13 of the top 20 big cities will have surpassed their pre-crisis peaks.” That’s right. Not only is Detroit right on the doorstep of a full recovery, Motown could soon surpass its pre-crisis peak in the next few months. Detroit’s recovery tracks with what’s going on nationwide, with home prices continuing to rise across the board, although that increase has tracked below other asset classes. From Amherst’s report: “US housing market grew at a solid 5.3% Y-o-Y in April 2018 according to Amherst Home Price Index. Overall, US single-family price growth has significantly lagged the post-crisis recoveries witnessed in equities and commercial real estate. The pace of new single-family housing construction remains anemic by historical norms even as we expect greater demand from more millennials entering family formation ages in the coming years. Amherst remains optimistic on the US home price growth for the foreseeable future. We expect National home prices to continue their solid growth, with an HPA forecast of 4.3% next year.”