The "Home ATM" Mostly Closed in Q3

Total Mortgage Equity Withdrawal (MEW) was Slightly Positive in Q3

During the housing bubble, many homeowners borrowed heavily against their perceived home equity - jokingly calling it the “Home ATM” - and this contributed to the subsequent housing bust, since so many homeowners had negative equity in their homes when house prices declined.

Unlike during the housing bubble, very few homeowners have negative equity now. From CoreLogic last week: CoreLogic: US Homeowners See Equity Gains Drop by More Than 5 Percent in Q3

The report shows that U.S. homeowners with mortgages (which account for roughly 62% of all properties) saw home equity increase by $425 billion since the third quarter of 2023, a gain of 2.5% year over year, bringing the total net homeowner equity to over $17.5 trillion in the third quarter of 2024. …

For the first time since the fourth quarter of 2022, the share of negative equity rose in the U.S. on a quarterly basis. Just compared to last quarter, the number of residential properties that fell into negative equity increased by 30,000 homes or 1.8%.

Mortgage Equity Withdrawal is an aggregate number and is a combination of homeowners extracting equity - hence the name "MEW" - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).

Quarterly Increase in Mortgage Debt

Here is the quarterly increase in mortgage debt from the Federal Reserve’s Financial Accounts of the United States - Z.1 (sometimes called the Flow of Funds report) released today. In the mid ‘00s, there was a large increase in mortgage debt associated with the housing bubble.

In Q3 2024, mortgage debt increased $105 billion, up from $99 billion in Q2, and down from the cycle peak of $467 billion in Q2 2021. Note the almost 7 years of declining mortgage debt as distressed sales (foreclosures and short sales) wiped out a significant amount of debt.

However, some of this debt is being used to increase the housing stock (purchase new homes), so this isn’t all Mortgage Equity Withdrawal (MEW).

Mortgage Debt as a Percent of GDP

The second graph shows household real estate assets and mortgage debt as a percent of GDP. Note this graph was impacted by the sharp decline in Q2 2020 GDP.

Mortgage debt is up $2.58 trillion from the peak during the housing bubble, but, as a percent of GDP is at 45.2% - down from Q2 - and down from a peak of 73.3% of GDP during the housing bust. This means most homeowners have large equity cushions in their home.

The value of real estate, as a percent of GDP, decreased in Q3 and is below the peak in Q2 2022, but is well above the median of the last 30 years.

Calculated Risk Estimate of MEW

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