Mortgage Equity Withdrawals Surge Amid Record Housing Wealth
Net equity extractions are on the rise as home prices keep climbing, but homeowners could soon slow their borrowing activity due to higher mortgage rates
June 10, 2022
Image: Stock.adobe.com
During the housing bubble and subsequent bust over a decade ago, homeowners borrowed heavily against their perceived equity and were ultimately left with negative equity when home prices began to fall. That “Home ATM” led to the downward spiral of the 2008 crash, but according to the CalculatedRisk Newsletter, buyers in today’s similarly heated market have taken much better precautions.
In fact, most homeowners have large equity cushions thanks to record high home appreciation throughout the pandemic, and though mortgage equity withdrawals (MEW) peaked in recent years, the current level of net equity extractions is far below the one seen during the 2008 housing bubble.
For Q1 2022, the Net Equity Extraction was $131 billion, or 2.87% of Disposable Personal Income (DPI). The last year has shown a sharp increase in equity extraction compared to recent years, but the level is nothing like the amount of equity extraction during the housing bubble as a percent of DPI. During the housing bubble we saw several quarters with MEW above 8% of DPI.
