Cash-out refis are in high demand as equity levels skyrocket

Record home price appreciation in recent years has pushed tappable home equity to new heights.

According to a report published by data vendor Black Knight this week, the third quarter of 2021 saw a nearly $250 billion dollar increase in tappable equity—a record. In turn, Black Knight predicts that there will be an influx of cash-out refis in the months to come.

“The aggregate total of $9.4 trillion is up an astonishing 32% from the same time last year and nearly 90% higher than the pre-Great Recession peak in 2006,” said Ben Graboske, data and analytics president at Black Knight. “That works out to nearly $178,000 available in tappable equity to the average homeowner with a mortgage before hitting a maximum combined loan-to-value ratio of 80%.”

Graboske added that the third quarter saw homeowners tap into their home equity at the highest rate in more than 14 years, with cash-outs making up 54% of all refinances, a 6% increase from the first quarter.

Overall, mortgage holders withdrew more than $70 billion in equity in the third quarter, equivalent to just 0.8% of available equity entering the quarter, the report said.

Year-over-year, more than a million cash-out refis were originated.

The data vendor noted that the share of cash-out refis is poised to rise further if 30-year rates continue to trend upward in coming quarters.

Areas with the highest concentration of tappable equity in the nation are Los Angeles, San Francisco, New York, San Jose and Seattle.

Additionally, the report said that the monthly mortgage payment (principal and interest) to purchase an average-priced home with 20% down increased by close to 25% since the start of 2021.

Black Knight said that elevated prices will continue into the foreseeable future, as inventory shortages continue to put upward pressure on home prices.

The data vendor noted that there is a 54% deficit in for-sale properties today compared to 2017 to 2019 averages. Black Knight’s report remarked that even if home prices hold steady, a rise in 30-year rates to 3.5% will result in the tightest affordability since 2009.

“At 4%, payment-to-income ratios would rise above the 1995-2003 market average, and at 5% would drive affordability to its worst level on record outside of the 2004-2008 bubble,” the report said.

Meanwhile, the delinquency rate has dropped to 3.74% in October, aligning closer to pre-pandemic levels registered in January 2020. Serious delinquencies fell by more than 10% as the first wave of borrowers who opted for forbearance returned to making payments, the report said.

Black Knight added that there are still close to 700,000 more seriously delinquent mortgages than there were prior to the pandemic.

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