According to Black Knight Financial Services, the rise in home values over the past couple of years has the amount of equity available to homeowners hitting a new high in February 2018. There is $5.4 trillion in available equity for homeowners to access—that is 10% more than the peak reached in 2005.
Okay, tap the brakes on that move-up home buying party bus.
About three quarters of that equity is held by homeowners with interest rates below current rates. So, why are we stopping? That sounds like a mortgage refi issue, right?
Yes, definitely a refi issue. But it also has an impact on home buying and purchase money mortgage lending. Mortgage prepayment rates are at the lowest levels since the beginning of 2014. Prepayment rates indicate how quickly homeowners are refinancing or selling. Current homeowners not selling means continued low levels of inventory and current homeowners not looking to move up. That is a bumpy road to navigate at high speed.
The drop in payoffs was caused by the recent rise in interest rates. Black Knight estimates the number of potential refinancing pool has declined by more than 40%. Black Knight’s “refinanceable pool” is the number of homeowners with not only the ability to refinance, but also the financial incentive to do so as well. What we need to consider is if that decline in homeowners likely to refi correlates with the number of homeowners likely to consider moving up.
It is nice to sell with a ton of equity and use that equity to move up, but increases in home prices and rising interest rates may have taken away much of the incentive to do so. While you maintain your equity position with the new purchase, that move up will likely mean a larger mortgage at a higher rate and payment with higher taxes and insurance. That is not much of a financial incentive to sell and move up.
At Embrace we have the product base, interest rates, and low costs that can make moving up attractive to many of your clients considering listing and moving. When you pair that with our Approved to Move™ program and our Guaranteed On-Time Closing, it can be the incentive package your clients may need to make that move up. Contact us today and we can talk about gassing up that party bus for a nice steady cruise through this 2018 home buying season.