An increasing number of homeowners are withdrawing cash from their properties.

• In the third quarter of the year, homeowners withdrew $48 billion in equity from their mortgages.
• Collectively, they possess approximately $17 trillion in equity.
• Less than half the rate seen in the decade leading up to the Fed hikes, they took only 0.42% of all tappable equity.

Homeowners in the U.S. have a record amount of equity, but they have been hesitant to use it due to higher interest rates over the past two years. However, this is now starting to change.

In the third quarter of this year, mortgage holders withdrew $48 billion of home equity, which is the largest volume in two years since the Federal Reserve started hiking its benchmark interest rate. While mortgage rates do not directly follow the Fed's rate, home equity lines of credit, or HELOCs, are tied to it. The Fed cut its rate by a half percentage point in mid-September.

Despite the bump, homeowners are still being pretty cautious.

Collectively, they possess approximately $17 trillion in total equity, with roughly $11 trillion being tappable, meaning homeowners could borrow on it while maintaining at least 20% equity in their homes, as most lenders require. The average homeowner currently has $319,000 in equity in their home, with $207,000 being tappable.

In the third quarter, homeowners withdrew only 0.42% of their tappable equity, which is significantly lower than the 0.94% rate seen in the decade prior to the Fed hikes.

Homeowners have extracted $476B in equity over the past 10 quarters, which is half the amount expected under normal circumstances. This amounts to nearly a half trillion untapped dollars that hasn't flowed back through the broader economy, according to Andy Walden, ICE vice president of research and analysis, in a release.

Equity is often utilized by homeowners for home repairs, renovation projects, and significant expenses, such as college tuition.

The monthly payment for a $50,000 HELOC increased from $167 in March 2022 to $413 in January 2023, but the latest rate cut slightly reduced the cost.

If the market continues to price in a 1.5 percentage point cut through the end of next year, and current spreads hold, it will have positive implications for both new equity lending and consumers with existing HELOCs, as the payment on a $50,000 withdrawal will fall below $300 per month, according to Walden's calculations.

Despite being higher than the 20-year average, the cost has decreased by more than 25% from its recent peak, as per calculations.

Walden stated that borrowers' recent sensitivity to slight rate drops could encourage additional HELOC utilization, particularly among mortgage holders with significant equity and locked-in home values via low first lien rates.

Recently, home equity growth has been slowing down due to a decrease in home prices and an increase in supply on the market. Additionally, primary mortgage rates are currently higher than they were during the summer, which reduces the bargaining power of sellers.