Black Knight Mortgage Monitor for January
"$275 billion in equity withdrawn" in 2021
Black Knight publishes a monthly Mortgage Monitor report that contains interesting information on the mortgage market and housing.
Today, the Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based upon the company's industry-leading mortgage, real estate and public records datasets. This month's report looks into 2021's record-breaking $4.4 trillion in mortgage originations and the distinct shift to an equity-driven refinance market. According to Black Knight Data & Analytics President Ben Graboske, though American homeowners are tapping their homes' equity via cash-out refinances at the highest level since 2005, they are doing so judiciously, at roughly half the rate seen back then.
Entering 2021, consensus opinion was that originations would likely come in 20-25% lower than 2020's record-breaking levels," said Graboske. "Our own forecast suggested a slighter decline, on the order of -7%. In the end, total originations came in at $4.4 trillion, actually outpacing the prior record. At $1.7 trillion for the year, purchase lending also hit the highest point ever recorded, while the $2.7 trillion in refinance lending was a bit below 2020 levels. What stands out is the 20% growth in cash-outs over 2021, which accounted for $1.2 trillion in originations last year and $275 billion in equity withdrawn. In Q4 alone, homeowners tapped $80 billion – the most in 15 years – while marking the fifth consecutive quarter of more than 1 million borrowers pulling cash out. And yet, despite that sizable withdrawal, surging home values meant overall tappable equity still grew by nearly $450 billion in the quarter.
"Likewise, rising home values are resulting in much lower post-cash-out LTVs than we've seen in recent years – and more than 10 points lower than during the previous peak – while high average credit scores are also helping to lower the overall risk profile of these loans. We've been discussing this shift to an equity-centric market for some time, and our Optimal Blue rate lock data showed that cash-out activity continued to increase in January of this year as well. Now for the bad news: retention of cash-out refinance borrowers has been notoriously difficult. Even in a quarter that saw overall retention rates hit an eight-year high, cash-out retention was still 8 percentage points lower than for rate/term refis. Servicers continue to struggle with this segment, despite strong improvement."
Here is a graph on delinquencies from Black Knight:
• At 3.3%, the national delinquency rate is almost even with pre-pandemic levels and very near the record low set in January 2020
• Early-stage delinquencies (30- to 60-days past due) edged higher in January, but remain 30% below pre-pandemic levels
• Serious delinquencies (90+ days delinquent) saw strong improvement (-9%) in the month, but just over twice as many as before the pandemic remain
• At 859K, there are still almost half a million more seriously delinquent mortgages (including those in active forbearance plans) than there were prior to the pandemic
The second graph shows Black Knight’s estimate of quarterly mortgage equity withdrawal (MEW):
• Homeowners tapped a combined $80B in equity via cash-out refinances in Q4 – the largest such volume in 15 years and the fifth consecutive quarter of >1M cash-out originations
• Cash-out withdrawals have doubled over the past two years, with the share of available equity withdrawn hitting its highest level since the Great Recession
• The current rate of withdrawal as a share of total available (tappable equity) is double the pace of 2018/2019, but only about half of the all-time high in 2006
I’ll have more on Mortgage Equity Withdrawal later this week after the Fed releases the Q4 Flow of Funds report (Financial Accounts of the United States - Z.1).
And on the payment to income ratio (this is high):
• Rising home prices and interest rates continue to put significant pressure on home buyers
• The principal and interest payment required to buy the average-priced home is up $186 (14%) over the first two months of the year and $417 (37%) year-over-year
• It now requires 27.5% of the median household income to purchase the average home – well above the long-term affordability benchmark of 25%, though still below the high of 34% during the pre-Great Recession bubble
• From 2013 through 2019, a payment-to-income ratio of 21.5% universally corresponded with home price deceleration – a trend that's been shattered in the post-pandemic world
There is much more in the mortgage monitor.