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Despite exceedingly low interest rates, a very limited number of borrowers pulled cash out of their houses in Q1. This led to a record-high for the dollar value of usable home equity, reports Integrated Technology firm, Black Knight.
The mind goes back to the housing boom when homeowners tapped their equity to buy cars and fund vacations. When the market crashed, many such owners were left with no equity at all in their homes. There is enough evidence to believe that many still fear cash-outs due to the memory of those days.
Cash-out refinances had risen in 2018 but that can be put down to the high interest rates prevailing back then. Moreover, the FHA increased their LTV ratio for cash-out refinances to 85% from 80% in 2019. This also led to more cash-outs.
To paraphrase Black Knight’s Data and Analytics Division President, Ben Graboske, refinance lending has cumulatively grown in Q1 (reaching the highest point in the last 7 years) but the dollar amount of equity pulled out has been the least since the first few months of 2019.
To quote Graboske, “All in, cash-outs accounted for just 42% of refinance loans in the first quarter, roughly half of what was seen at the recent high in the fourth quarter of 2018 and the lowest such share since the first quarter of 2016. Likewise, the $38.7 billion in equity withdrawn from the market via cash-out refinances was down 8% from the prior quarter.”