Rise in cash-out refi share is a sign of higher mortgage rates

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The share of cash-out mortgage refinancings was its highest in nearly 10 years in the first quarter. But rather than being a case of consumers using their home as a piggybank, it is a sign of a rising interest rate environment that is curtailing total refinance volume.

Cash-out refis were 35.9% of mortgages originated in the first quarter, compared with 41.2% for purchase mortgage loans and 25.2% for rate and term refis, according to data from the Federal Housing Finance Agency. The share of cash-out refis was 61%, the highest since the third quarter of 2008, when the share was 65.5%.

Between the fourth quarter of 2005 and the third quarter of 2006, during the height of the housing boom, the cash-out refi share topped 70%.

"This is more due to rate and term refinances dropping, and cash-outs becoming a larger share of the remaining, rather than a massive increase in home equity extraction," MBA Chief Economist Mike Fratantoni said. "So I don't think the 'ATM' appellation is correct," referring to the crisis-era habit of consumers tapping their home equity to pay for cars, vacations and other things.

Median home prices have rebounded from their post-crisis lows. In the first quarter, the national median price for an existing home was $245,000, up 5.7% from the previous year, according to the National Association of Realtors.

But that was supported by a lack of homes being placed for sale; there was a 7.2% year-over-year decline in the number of properties on the market.

At the same time, mortgage interest rates have been rising. Rates increased in 15 of the first 21 weeks of 2018, according to Freddie Mac.

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Refinance Mortgage rates Home prices FHFA Mortgage Bankers Association