|According to TransUnion, household home equity is currently nearing $15 trillion and has surpassed its prior housing bubble peak in the first quarter of 2006 by more than $1 trillion. Home equity levels have been rising at a rapid rate each year since hovering around the $6 trillion mark in 2011.
And that means Home Equity borrowing is poised to see a large increase as homeowners use a portion of that equity to pay bills, make home improvements, travel, etc.
Joe Mellman, senior vice president and mortgage business leader at TransUnion said “There are ample signs that the home equity lending market is poised for growth. Home prices have surpassed 2005 boom levels and household home equity has grown even faster.” and that an “increasing consumer debt makes debt consolidation an appealing option and home equity can be the most economically attractive path to do just that. The recession caused a home equity lending pull-back, which all but eliminated consumer marketing and education. We think there’s an opportunity to re-introduce that education to consumers and help them evaluate how and when tapping home equity could make sense.”
TransUnion said the home equity loan market may accelerate given these new market dynamics, noting that HELOCs represented the greatest number of home equity originations in 2017 at 1.2 million. With a 2.3% year-over-year growth from 2016, HELOCs present a market opportunity for lenders. TransUnion also noted that HELOCs have extremely low vintage default rates and that an estimated 70 million homeowners are likely to qualify for a home equity product.
“With rising interest rates and increases in home prices outpacing wage growth, homeowners are more likely to stay in their current homes, rather than ‘move up.’ This leads to a higher likelihood of improving their existing home and home equity can be great tool for that,” Mellman said.
What Happened to Rates Last Week?
|Mortgage backed securities (FNMA 4.50 MBS) lost -25 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher.
Overview: After a brief pause in the sell-off of Mortgage Backed Securities (MBS) two weeks ago, they resumed their downward trend last week which continued to push fixed mortgage rates upward. The FOMC Minutes gained the most attention of long-bond traders last week and it’s consistently “hawkish” tone did provide a little more pressure to pricing.
Taking it to the House: September Existing Home Sales were a little lighter than expected (5.15M vs est of 5.30M). But there were some bright spots. The median sales price reached another new high and is now $258,100 which is up 4.2% from this time last year. Total sales are now up 4.1% on a yearly basis. Inventories got a little relief with 4.4 months of supply vs 4.2 months last year. Weekly Mortgage Applications hit a 17 year low. Mortgage Applications dropped by -7.1% overall, led by a steep drop of -9.0% in Refinance Applications. Purchase Applications dropped by -6.0%. New Housing Starts were lighter than expected (1.201M vs est of 1.237M). Building Permits were also light (1.241M vs est of 1.280M).
The Talking Fed: Former Fed Chair Alan Greenspan said that the 50 year low Unemployment Rate coupled with record number of job openings (JOLTS) will force up wages and inflation. He also said that “This is the tightest market, labor market, I’ve ever seen.”
We got the Minutes from the last FOMC meeting where they raised their Fed Fund rate by 25 basis points and released their economic projections.
What to Watch Out For This Week:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.