JACKSONVILLE, Fla.–Home owners continue to borrow against the equity in their homes, but nowhere near the levels seen prior to the financial crisis.
According to data released by Black Knight Data & Analytics, there were approximately 350,000 cash-out refinances in Q2 2016, which accounted for 42% of all refinances in the quarter, and marked the ninth consecutive quarterly increase in cash-out lending, That figure is not only by count, but also by the amount of equity tapped.
“At $22.6 billion, that works out to approximately $65,000 in equity tapped per borrower,” said Black Knight Data & Analytics Executive Vice President Ben Graboske. “While that per-borrower number is slightly down from Q1 2016 – but $6,000 higher than one year ago – the $22.6 billion total is the largest equity sum tapped since Q2 2009.”
That figure, however, is still approximately 80% below the equity draw at the peak in Q3 2005, Black Knight said. It noted in its analysis that the U.S. saw more than $550 billion in tappable equity growth during 2015 alone, meaning the new data show borrowers are tapping into 15% of the growth in equity over the past 12 months, “without even touching the $4.5 trillion balance in tappable equity available,” the company said.
Black Knight reported that cash-outs are helping to prop up the refinance market – their 42% share is up from only 30% in early 2015 when interest rates had also dropped. What's more, refi volumes are down from 2015 – at least through the second quarter – but while overall they're down 9% from Q1 2015, rate/term refinances are actually down 25% over that same period, Black Knight said.
"Today's cash-out refinance borrowers continue to present a relatively low risk profile, historically speaking," Graboske said in a statement. "The average credit score of 748 among Q2 2016 cash-out refinance borrowers is 67 points higher than that of the low point recorded in Q3 2006, and is in fact nearly 60 points higher than the overall average credit score from 2005 through 2007. In addition, post-cash-out loan-to-value ratios remain low. At 66%, it's slightly higher than in Q1 2016, but it's the second lowest quarterly average recorded in over 11 years. This is nearly 6% below the 2005-2007 average and 10% below the highs recorded in late 2008. In addition, while not specific to cash-out refinancing, we continue to see prudent behavior on the part of borrowers. Some 40% of Q2 2016 rate/term refinances involved the borrower reducing their loan term, the highest share of term reductions since late 2013/early 2014."