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Home Prices, Housing Wealth and Home Equity Extraction Andrew Haughwout, Donghoon Lee, Joelle Scally and Wilbert van der Klaauw
May 17, 2018
The views expressed here are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.
Outline of Today’s Material
I. Recent developments in household credit, home prices and homeownership
II. Growth & change in housing wealth, aka home equity
III. Home equity extraction: A. How much? B. Who? C. Why?
1
I. Household Debt, Home Prices andHomeownership
2
Total debt is rising, but more slowly this time
0
3
6
9
12
15
0
3
6
9
12
15Mortgage HE Revolving Auto Loan Credit Card Student Loan Other
Trillions of Dollars
Total debt balance and its composition Trillions of Dollars
Source: New York Fed Consumer Credit Panel/Equifax
(3%)
(11%)
(6%)
(9%)
(3%)
(68%)
+$2.1T (18%)
3
Total debt is rising, but more slowly this time
0
3
6
9
12
15
0
3
6
9
12
15Mortgage HE Revolving Auto Loan Credit Card Student Loan Other
Trillions of Dollars
Total debt balance and its composition Trillions of Dollars
Source: New York Fed Consumer Credit Panel/Equifax
(3%)
(11%)
(6%)
(9%)
(3%)
(68%)
+$1T (12%)
4
Total debt is rising, but more slowly this time
0
3
6
9
12
15
0
3
6
9
12
15Mortgage HE Revolving Auto Loan Credit Card Student Loan Other
Trillions of Dollars
Total debt balance and its composition Trillions of Dollars
Source: New York Fed Consumer Credit Panel/Equifax
(3%)
(11%)
(6%)
(9%)
(3%)
(68%)
+$4.8T (93%)
5
Tight mortgage standards part of the story
Mortgage Originations by Credit Score* Auto Loan Originations by Credit Score*
Source: New York Fed Consumer Credit Panel/Equifax
* Credit Score is Equifax Riskscore 3.0
0
200
400
600
800
1,000
1,200
0
200
400
600
800
1,000
1,200
03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 18:Q1
<620 620-659 660-719
720-759 760+
Billions of Dollars Billions of Dollars
0
20
40
60
80
100
120
140
160
180
0
20
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60
80
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140
160
180
04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 18:Q1
<620 620-659 660-719720-759 760+
Billions of Dollars Billions of Dollars
6
Home prices have recovered previous peak . . .
60
80
100
120
140
160
180
200
95:Q
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Co
reLo
gic
Ho
use
Pri
ce In
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x J
anu
ary
20
00
=10
0
7
60
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180
200
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Co
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=10
0
+73% in 6 years
. . . but this recovery has been notably slower
8
Series 1
(Left Axis)
Series 2
(Right Axis)
Series 3
(Left Axis)
Series 4
(Right Axis)
Series 5
(Left Axis)
Series 6
(Right Axis)
Homeownership rate returning to normal
60
62
64
66
68
70
60
62
64
66
68
70
1965 1969 1974 1979 1984 1989 1994 1998 2003 2008 2013
Percent Percent
Source: Census Bureau via Haver Analytics Note: Shading shows NBER recessions.
9
Series 1
(Left Axis)
Series 2
(Right Axis)
Series 3
(Left Axis)
Series 4
(Right Axis)
Series 5
(Left Axis)
Series 6
(Right Axis)
Homeownership varies by age
34
39
44
49
54
55
60
65
70
75
80
85
1993 1995 1998 2000 2002 2004 2007 2009 2011 2013 2016
Percent Percent
Source: Census Bureau via Haver Analytics
Note: Shading shows NBER recessions.
Homeownership rate is seasonally adjusted.
Ages 35-45 (Left Axis)
Under 35 (Right Axis)
Ages 45-55 (Left Axis)
Ages 55-65 (Left Axis) Ages 65+ (Left Axis)
10
Summary of Part I
• Household debt continues to grow and has surpassed previous peak• But growth has been sluggish
• Tight mortgage standards a crucial part of the story• No significant revival of subprime in mortgage, unlike auto
• Home prices have now recovered after an unprecedented rise and fall
• Homeownership followed a similar path, diverging from its history
• Rise and fall of homeownership especially strong among young 11
II. Growth & Change in Housing Wealth
12
Aggregate housing wealth has recovered . . .
0
10
20
30
40
50
60
70
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Owner's Equity, $ Billions Owner's Equity, % of Value, Right Hand Scale
$ Billions Percent
Source: Federal Reserve Board of Governors 13
Median Borrower Equity by County, 2006 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 14
Median Borrower Equity by County, 2007 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 15
Median Borrower Equity by County, 2008 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 16
Median Borrower Equity by County, 2009 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 17
Median Borrower Equity by County, 2010 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 18
Median Borrower Equity by County, 2011 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 19
Median Borrower Equity by County, 2012 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 20
Median Borrower Equity by County, 2013 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 21
Median Borrower Equity by County, 2014 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 22
Median Borrower Equity by County, 2015 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 23
Median Borrower Equity by County, 2016 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 24
Median Borrower Equity by County, 2017 ($)
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated 25
Housing wealth shifting to older borrowers . . .
24%
52%
24%
2006
14%
45%
41%
2017
<45
45-60
>60
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated
Tappable Equity (LTV ≤ 80)
26
. . . and to higher credit score borrowers
20%
36%
44%
2006
16%
31%
53%
2017
<700
700-780
> 780
Source: Fuster, Guttman-Kenney and Haughwout, 2016, updated
Tappable Equity (LTV ≤ 80)
27
Summary of Part 2
• Home price recovery and slow debt growth have produced record high in housing wealth, aka home equity
• Tight credit standards and reduction in homeownership, especially for the young, have contributed to a shift in housing wealth toward older, higher credit score borrowers
• Home equity is crucial form of collateral, meaning that young people’s access to low cost credit is affected
28
III. Home Equity Extraction
29
Trends in home equity extraction
• Two ways to extract equity without moving: cash-out refis andjunior liens
• Home equity extraction was a significant upward force onmortgage balances during the boom, but has been mixed since2010:
– Impact of cash out refinances is boosting balances, but slowly
– Junior lien activity has remained a net-negative force on housingbalances since 2010
30
Cash out refis increase slightly
Source: New York Fed Consumer Credit Panel / Equifax
-100
0
100
200
300
400
500
2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 2012Q1 2014Q1 2016Q1
Home Equity Extraction (annual change)
Billions of Dollars
Cash out refinance
31
Junior lien equity being repaid on net
Source: New York Fed Consumer Credit Panel / Equifax
-100
0
100
200
300
400
500
2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 2012Q1 2014Q1 2016Q1
Home Equity Extraction (annual change)
Billions of Dollars
Cash out refinance
Junior liens (includes HELOC and HELOAN)
32
Aggregate equity extraction remains low
Source: New York Fed Consumer Credit Panel / Equifax
-100
0
100
200
300
400
500
2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 2012Q1 2014Q1 2016Q1
Home Equity Extraction (annual change)
Billions of Dollars
Aggregate Equity Extraction
Cash out refinance
Junior liens (includes HELOC and HELOAN)
33
Mortgage underwriting remains tight, especially for equity extraction
Source: New York Fed Consumer Credit Panel / Equifax
660
680
700
720
740
760
780
800Median Credit Score at Origination
purchase cashout heloc
Credit score is Equifax Riskscore 3.0
34
Since 2009, extraction has been dominated by highest score borrowers
0
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00
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16
HELOC Originations (Initial Pledge Amount)
<620 620-659 660-719 720-759 760+
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Cashout Refinances
Bill
ion
s o
f D
olla
rs
Source: New York Fed Consumer Credit Panel / Equifax Credit score is Equifax Riskscore 3.0
35
Borrowers are much older than in the past
• Only 13% of borrowers in 2006were over 60
• 28% of borrowers who extractedequity in 2017 were over 60years old
• Only 25% of borrowers whoextracted equity in 2017 wereunder 45
Source: New York Fed Consumer Credit Panel / Equifax
41% 41% 25%
47% 46% 47%
12% 13% 28%
2002 2006 2017
Equity Extractors Age of Borrower:
<45 45-60 >60
36
Reasons for new HELOCs or cashout refinances
• Piggyback: Originated concurrently with a first mortgage, oftento avoid PMI or to finance a down payment
• Consolidate: Pay off other types of debt balances andconsolidate to more favorable rate
• Spend: Finance a large expense (home renovation, equipmentpurchase, vacation)
• Refi: Refinance existing housing debt to more favorable term orrate
37
Equity withdrawals are smaller than they used to be
Source: New York Fed Consumer Credit Panel / Equifax;
HELOC draw is report as balance in 3rd quarter of loan life
$46K
$24K
$27K $25K
$0
$10
$20
$30
$40
$502
00
0
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01
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17
median cashout median heloc drawThousands
38
The use of piggyback HELOCs has declined since the boom
Source: New York Fed Consumer Credit Panel / Equifax
24%
22%
8%
0%
5%
10%
15%
20%
25%
30%
Share of HELOCs Originated as Piggyback
39
Debt Consolidation
• We study the changes in credit card debt and student debtamong HELOC originators
• Comparing 2006 and 2017 HELOC Originators:
– 2006 originators were primarily levering up, with a small decline inaverage credit card balances, and piggybacks a large share
– 2017 originators’ credit reports show evidence of credit card andstudent loan consolidation
40
Debt consolidation is more common among recent borrowers
5% 7%
-5% -10%
2006 2017
Credit Card Yearly percent growth in avg bal
everyone else originators23%
5%
12%
-5%
2006 2017
Student Loan Yearly percent growth in avg bal
Source: New York Fed Consumer Credit Panel / Equifax
41
Wrapping Up
• Home prices have recovered, but homeownership has not, especially foryounger Americans, compounded by tight underwriting
• Housing wealth has shifted toward older, more creditworthy borrowers– limiting asset growth and collateral growth
• Equity extraction is relatively low now, considering potential uses to borrowersand high levels of tappable equity– Post-recession tight underwriting and lack of equity have resulted in lower issuance of
collateralized credit to younger borrowers– Older, more credit-worthy borrowers have seen a larger share of recently extracted equity– Equity extraction for credit consolidation is more common recently than in past years
• Home equity is an important form of wealth and access to low-cost borrowing,and we will continue to monitor its behavior
42
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