Pessimism Continues for Buyers and Refinancing, but Home Equity Loans See Surge
Written By: Joel Palmer, Op-Ed Writer
Potential homebuyers continue to be less optimistic about buying a home, while existing homeowners are turning to home equity loans and lines of credit amid rising mortgage rates.
Fannie Mae reported last week that its monthly Home Purchase Sentiment Index® (HPSI) decreased by 4.7 points to 68.5 in April, its lowest level since May 2020. The survey noted that consumers remain concerned about housing affordability and rising mortgage rates.
All six of the index’s components decreased month over month, with a survey-high 76 percent of consumers indicating that they believe it’s a bad time to buy a home, up from 73 percent last month. Additionally, 73 percent of respondents expect mortgage rates to continue their recent ascent over the next 12 months, also a survey high. Year over year, the full index is down 10.5 points.
“In April, the HPSI fell to its lowest level since the first few months of the pandemic, as consumers continue to report difficult homebuying conditions amid the budget-tightening constraints of inflation, higher mortgage rates, and high home price appreciation,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
“The current lack of entry-level supply and the rapid uptick in mortgage rates appear to be adversely impacting potential first-time homebuyers in particular, evidenced by the larger share of younger respondents (aged 18- to 34) reporting that it’s a ‘bad time to buy a home. ’Additionally, consumer perception regarding the ease of getting a mortgage also decreased across nearly all surveyed segments this month, suggesting to us that the benefit of the recent past’s historically low mortgage rate environment appears to have diminished, and affordability is poised to become an even greater constraint going forward. This sentiment is consistent with our forecast of decelerating home sales through the rest of 2022 and into 2023.”
The percentage of respondents who said it’s a good time to sell a home decreased slightly from 74 percent to 72 percent.
The rise in home prices has provided existing homeowners increased home equity, however the rise in mortgage rates since the end of last year has stalled mortgage refinances. On the flip side, homeowners are increasingly turning to home equity loans and lines of credits (HELOCs).
According to the latest data from TransUnion, tappable home equity reached an estimated $20 trillion in the fourth quarter of 2021, up from an estimated $18 trillion in the third quarter and $13 trillion the year before. That marks a year-over-year increase of about 65 percent.
As rates started to climb in the fourth quarter of last year, cash-out refinance volume declined 6 percent year-over-year. In their place, HELOC volume jumped 31 percent while traditional home equity loan volume rose 13 percent.
Combined, total home equity origination volume increased 4 percent year-over-year, demonstrating that there may still be demand for mortgage processors and underwriters as rates climb and stabilize well above the historic lows of the last several years. TransUnion noted that origination volume was down 138 percent between the fourth quarter of 2020 and the fourth quarter of 2021.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
