TheMReport — News and strategies for the evolving mortgage marketplace.
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18 | M R EP O RT FEATURE However, as fewer homeowners are able to lower their monthly payments through refinancing or access their home's equity through a cash-out refinance, a new type of borrower will emerge: those who want to pull cash out of their home without refinancing. More and more homeowners will be looking for home equity loans in order to tap into the unprecedented levels of cash in their homes without increasing the interest rate on their current mortgage. 3. Home Prices Surge, Giving Homeowners Greater Access to Cash H ome prices surged to all-time highs, granting homeown- ers access to higher amounts of tappable equity than ever before. Home prices rose 19.1% annually in January, an all-new record high, according to the latest CoreLogic Home Price Index (HPI). Overall, homeowners gained $250 billion in tappable equity in the third quarter of 2021, surging past the previous record highs, according to Black Knight's Mortgage Monitor report. "Home price growth in the third quarter—while less than half that of Q2's history-making rate—added more than $250 bil- lion to Americans' already record levels of tappable equity," Ben Graboske, Black Knight President of Data and Analytics, said in the report. "The aggregate total of $9.4 trillion is up an astonish- ing 32% from the same time last year and nearly 90% higher than the pre-Great Recession peak in 2006." Homeowners have access to more funds than they ever did before—an average $178,000 per homeowner. These unprecedented levels will drive homeowners to tap the accrued value of their homes via home equity loans for a variety of reasons, including home improvement projects, to pay down debt, and a multitude of other needs, even as interest rates rise. Of course, the gains in home values vary significantly depend- ing upon where the homeowner lives. For example, homes in the Northeast saw less than 10% increases in home value, while those in the South saw gains of more than 20%. Likewise, local demand plays a key factor on which homes appreciate in value the quickest. In some areas, high-end homes are more likely to appreciate faster, while in other areas entry level homes are in higher demand and therefore ap- preciating in value more quickly. 4. Economic Stimulus Runs Dry and Homeowners Still Need Access to More Funds D uring the pandemic, the fed- eral government issued three rounds of stimulus payments, equating to 478 million payments of $812 billion for all three rounds, and sent Advance Child Tax Credit (AdvCTC) payments to over 36 million families, total- ing over $93 billion, according to National Taxpayer Advocate Erin M. Collins in her 2021 Annual Report to Congress. While the stimulus package helped many Americans through hard times while jobs were shut down, some people simply received an influx of cash as they continued to work from home. This money, while meant to help hardworking Americans, was also intended to stimulate the economy by increasing spend- ing. The checks had their desired effect, as consumer spending saw a boost, including a surge in home improvement projects. Americans were spending much more time in their homes, and now had stimulus money available to help fund their projects. Now, with stimulus money running out, many Americans can draw cash out of their homes through a home equity loan in order to finish funding their projects versus braving the highly competitive housing market in a search for a new home. 5. Supply Shortage Makes Americans Wary of Entering Housing Market A fter trying to rapidly increase imports to meet the growing demand created by the economic stimulus package, U.S. ports became clogged and supply issues grew to become a major economic concern. In addition, labor shortages only further exacerbated supply chain constraints. It is projected that supply chain deficiencies could continue for the foreseeable future, through at least 2030. And with more than 11 million available jobs, it will not be easy to hire anyone in the next seven to 10 years. The housing industry is not immune to the supply chain problems. Materials are harder to acquire or are on back order for months. As a result, new home construction has slowed and, when combined with what seems to be an insatiable demand for housing, the number of available homes is at an all-time low. Building permits are up as homebuilders continue to strive to increase the supply of homes for sale, but weather, supplies, and labor shortages are slowing the growth. Even at high building rates, it could take between five and eight years to bring supply and demand back into balance for the housing market. These supply constraints and an uber-competitive market has pushed many homeowners to elect to improve their current home, rather than face elevated home prices, limited inventory, and fierce competition in the homebuying market. As more homeowners elect to stay in their current home and remodel, the demand for home equity loans will only continue to grow. With interest rates trending steadily upward it is safe to say that the refi boom has come to an end. While few borrowers will benefit from refinancing their mortgage, many now have unprecedented levels of equity to use to their benefit. A home equity loan allows these home- owners to access and utilize that equity as they see fit without raising the rate of their current mortgage loan. DAN BAILEY is SVP of WFG Lender Services & WFG Enterprise Solutions. Bailey has nearly 20 years' experience in the title insurance industry, where he began his career as a compliance officer for a national title insurance company. Bailey joined WFG as SVP in the Lender Services Division in 2013. In this role, he oversees operations for WFG's Lender Services division, heads the company's Enterprise Solutions sales team, and leads strategic direction for both organizations. Bailey is a graduate of the University of Pittsburgh School of Law and is a licensed attorney in New York and Pennsylvania. The housing industry is not immune to the supply chain problems.