Homeowners are seeing record levels of equity in their homes, and many are eager to use it.
Mortgage originations hit their highest levels since 2022 driven in large part by purchases and cash-out refinances, according to Intercontinental Exchange's August Mortgage Monitor. Cash-out loans made up 59% of all refinances, with borrowers pulling an average of $94,000 from their homes.
Collective tappable equity hit $17.8 trillion in Q2, ICE found.
"Homeowners are actively drawing on record equity with cash-out refinance loans, signaling increased demand despite elevated rates," said Andy Walden, head of mortgage and housing market research at ICE, in a statement. "Meanwhile, a substantial cohort of people who purchased homes over the last three years are watching on the sidelines for rates to drop so they can refinance into a lower monthly payment."
Those apprehensive owners may soon get what they've been waiting for. The average 30-year FRM rate has fallen 41 basis points from the high in January to 6.63% last week, according to Freddie Mac. ICE found that around 1.6 million borrowers currently stand to benefit from refinancing, and if rates fall below 6.375%, that number could nearly double to more than 3 million.
For lenders, it's a welcomed prospect. Many are leaning on refinancing and equity products to offset slower purchase activity.
Delinquencies and foreclosures up slightly
A small but steady rise in non-current loans has raised some worries, though. Both delinquencies and foreclosures rose from last month, driven primarily by loans backed by the Federal Housing Administration. FHA delinquencies reached their highest June level since 2013, and across the country, FHA loans made up more than half of all loans that were more than 90 days past due.
Foreclosures on Department of Veterans Affairs-backed mortgages were also up 61% from last year, due largely to the end of a moratorium last December that continued
While overall foreclosures rose 12% year-over-year, activity on conventional loans fell 5%, suggesting that distress remains concentrated in FHA and VA products.
Home prices continue to cool
Home prices nationwide grew 1% in July year-over-year, the slowest rate this year and some of the slowest rates since 2012. Cities in the South and West are the hardest hit, with many metros seeing prices down from this point last year. Cape Coral, Fla., experienced the steepest drop, with prices down 9.8%. In Denver, Dallas, and Palm Beach, home prices fell between 2% and 2.5%.
The weak market in some markets may be starting to weigh on sellers, the report suggested, with inventory dropping as some homeowners reconsidering their plans to sell. Available inventory declined for the first time this year, and cities like Denver and San Francisco saw available homes for sale drop by 20% or more.
"This mirrors 2023, when softening home prices stalled inventory growth, ultimately leading to a rebound in home-price appreciation," the report said, though it added that inventories are still higher now than they were back then.
