“Our outlook for the housing market remains largely unchanged,” Freddie Mac Chief Economist Sam Khater said. “We still expect stronger home sales and housing starts in the coming months due to favorable market conditions and accelerating wage growth.”
According to Freddie’s analysis, the refinance share will increase from 30% of all originations in 2018 to 33% by the end of the year.
Although, refinance activity has heightened, new data indicates American homeowners are still refraining from leveraging their home equity as supplemental wealth.
“Our quarterly report on refinance activity shows that few U.S. homeowners are choosing to tap into their largest source of wealth despite having a record $16 trillion in home equity available to them,” Khater said. “Most homeowners remain reluctant to increase their mortgage balance, whereas we continue to see balance increases on auto loans, credit cards, and student loans.”
Freddie’s report claims that “Cash-out” borrowers represented only 76% of all refinance loans in the first quarter of 2019, falling from 82% at the end of 2018.
Andy Walden, Black Knight’s director of market research, said there is a very clear inverse correlation between rising rates and declining equity withdrawals.
“Over the past three years, the Fed has steadily ratcheted up short-term interest rates, which are directly related to rate offerings on home equity lines of credit,” Walden said. “In fact, the introductory rate on HELOCs has risen by more than two percentage points during that time.”
“Then, 2018 saw 30-year fixed rates rise as well,” he added. “With borrowing costs rising, a significant number of homeowners – despite having record levels of equity – are choosing to forego equity withdrawals.”
And Walden’s findings are spot on, as only an estimated $16.6 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages in the first quarter of 2019.
While this number appears large in stature, it’s still a decrease from last year’s $19.1 billion, according to Freddie.