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1Q17 CASH-OUT REFINANCES RECORD HIGHEST SHARE SINCE 4Q08
Per Freddie Mac’s 1st quarter 2017 refinance data, 49% of refinance borrowers took a cash out, up from 44% in the fourth quarter of 2016. By cash-out refinance, it means borrowers were refinancing 5% more than their existing unpaid loan balance.
This is the highest percentage share cash-out refi transactions achieved since the last quarter of 2008 with its 57% share. Nonetheless, the first quarter of 2017 record is almost halfway the highest share recorded in the third quarter of 2006 of 89%.
While the number of cash-out refi transactions increased, the opposite can be said about the cash taken out from these transactions. During the first quarter of 2017, borrowers cashed out a total of $14 billion in net home equity, a decrease from $19.1 billion cashed out in 4Q16.
Freddie Mac noted the increasing trend in the volume of cash-out refinances in the recent quarters but that it’s still far from the record $84 billion in the second quarter of 2006.
As to rate-and-term refinances, their decline has been moderated by low rates. Freddie Mac believes that the declining rates should spur more refinances.
2017 ‘BEST YEAR FOR HOUSING’
Despite tepid economic growth during the first quarter of 2017, Freddie Mac believes that 2017 is well on its way to eclipse housing’s performance last year.
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- Mortgage rates. Rates are holding out in the four-percent level. While they reached 4.3% in March and are expected to head higher later this year, rates have been on a decline for certain weeks now. They were a quarter of a percentage point in the four-percent territory.
- Home sales. Home sales up to May have performed better than expected. March recorded the highest existing home sales since the year 2007 and new home sales also beat expectations. These sent first-quarter 2017 home sales in the highest level since 2007. The same can be said with construction starts although there’s still a struggle to keep up with current housing demands. The strength shown by home sales should lead to more activity in the purchase loans segment, said Freddie.
- Home price growth. Freddie Mac considers house price growth as robust. U.S. home prices averaged 6.4% between March 2016 and 2017.
- Mortgage originations. Indeed, the lower rates have contributed to more mortgages being originated last quarter. Freddie notes that the total mortgages originated during the first quarter were $60 billion more than what it originally projected owing to the resilience of the refinancingactivity.
Sean Becketti, chief economist at Freddie Mac, elaborated: “Despite weak economic growth, housing got off to a good start in 2017 because low mortgage rates have given the spring homebuying season a pleasant surprise.
“Mortgage rates started March just above four percent and have mostly drifted lower since then, even falling below 4 percent. With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade.”