As of Q2 2024, tappable equity in the U.S. housing market has surged to a record $11.5 trillion, with three out of five mortgage holders possessing at least $100,000 in equity they can borrow against, according to the August 2024 ICE Mortgage Monitor Report. Despite outstanding mortgage debt hitting an all-time high of $13.8 trillion in June, rising home prices have driven mortgage holder equity to a new peak of $17.6 trillion.
Record-breaking equity and eased leverage
The growth in home equity has outpaced the rise in mortgage debt, reducing overall market leverage. Total mortgage debt is now equivalent to 44.1% of underlying home values, down from 44.6% in Q1 2024, marking the third lowest leverage ratio in over 20 years. Tappable equity, the amount borrowers can access while maintaining a 20% equity cushion, has increased by 4% from Q1 and 9.2% year-over-year.
Mortgage holders and tappable equity
Approximately 32 million mortgage holders have at least $100,000 in tappable equity. Of these, 4.6 million have at least $500,000, and nearly 1.2 million have $1 million or more. Higher equity holders typically have lower first lien rates, with borrowers holding $500,000 or more having average rates around 3.75%.
Credit scores and equity distribution
Two-thirds of tappable equity is held by borrowers with credit scores of 760 or higher. Similarly, those with sub-4% first lien rates hold a comparable share of tappable equity, creating an incentive for these borrowers to use second lien debt to tap into their equity if needed.
Underwater mortgages
Nationwide, fewer than 325,000 homeowners are underwater, representing just 0.60% of active mortgages. An additional 4.2% of mortgage holders have less than 10% equity in their homes. Texas, Florida, and Louisiana are states to watch, as growing inventory and softening home prices in certain areas are increasing the number of borrowers in negative equity positions.
Regional concerns
In Texas, home prices in Austin are over 15% below their 2022 peaks, resulting in 2.6% of mortgage holders being underwater. In San Antonio, the figure is 2.7%. Florida is seeing rising negative equity rates in cities like Cape Coral, Lakeland, North Port, and Jacksonville due to surging inventories and softening prices. In Louisiana, New Orleans and Baton Rouge are experiencing similar trends.
Nationwide, 84% of underwater mortgages originated in the past 3.5 years. In markets like San Antonio, Austin, Cape Coral, and North Port, where prices have significantly dropped from recent highs, this share climbs above 97%.
Industry implications
“Outstanding mortgage debt, including both first and second liens, hit an all-time high in June, but growth in home prices has outpaced that gradual rise in debt,” said Andy Walden, vice president of research and analysis at ICE. “Total cumulative debt leverage is equivalent to 44.1% of underlying home values, the third lowest leverage ratio we’ve seen in the past 20-plus years.”
Walden also noted that home equity lending has been sluggish since interest rates began climbing in early 2022. However, with industry expectations that the Federal Reserve might soon ease short-term rates, the dynamics could shift, potentially making home equity loans more attractive.
Conclusion
The August 2024 ICE Mortgage Monitor Report underscores a significant rise in tappable equity among mortgage holders, driven by increasing home prices and reduced leverage. As the market continues to evolve, particularly in regions with growing inventories and softening prices, homeowners and lenders alike will need to navigate the changing landscape of mortgage debt and equity.
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