Home Equity – Use It or Not?
With home values rising nationwide, many people are taking advantage of home equity and spending money. Following the financial crash that saw the real estate market plummet, many homeowners are not only borrowing against the value of their home — but using that money in a smarter way than ever and investing in their houses to build equity.
If you’re looking to do the same, it’s important to be aware of the current climate to ensure you’re doing the right thing.
A Market Rebuilt
The housing market is currently in a better position than it has been in years, with home values rising substantially. This has proven to be great for homeowners and the industry, as statistics have shown that homeowners are now using their equity as a means of paying for upgrades and home projects.
In California alone, the statistics has been largely positive.
“The local surge in home-equity lending and cash-out refinancings reflects a strong national trend in homeowners increasingly remodeling their homes and enhancing their properties,” California Credit Union League chief economist Dwight Johnston said. According to the CCUL, approximately 5.2 million homes throughout the state “had at least 20% equity as of June 2016.”
Financial experts have said that the rise in home value and equity loans are a good thing.
“Homeowners are cashing in on home equity again because they can,” Crystal Stranger, founder and tax operations director with 1st Tax, said, citing values rising to a point that there is enough equity to borrow. “This isn’t necessarily a bad thing though,” Stranger said.
“With the stagnant real estate market over the last decade, many homes built during the boom were poorly constructed and have deferred maintenance and upgrades that will need to be made before they could be re-sold. Using the equity in a home to spruce up to get the maximum sale price is a smart investment.”
Making An Investment
Prior to the market crash, home equity lines of credit (HELOCs) were seen as an irresponsible investment due to the horrendous state of the market and the plummeting values of homes.
“Before the financial crisis, many used home equity as a piggy bank for such lifestyle expenditures,” David Reiss, Professor of Law at Brooklyn Law School, said.
Recent data has shown, however, that the United States is currently in its fifth consecutive year of increases in HELOC organizations.
“Homeowners are once again seeing their homes as a source of wealth and leveraging that wealth,” ATTOM Data Solutions senior vice president Dan Blomquist said.
“The current dynamic is that people are staying in their homes longer. With wages having been largely flat for several years, the move-up buyer hasn’t been able to move up. Rather than taking out a new mortgage on the bigger home they’re looking to buy, people instead are staying put and taking out a HELOC to fund improvements or upgrades to their current home now that they expect to be there longer.”
The key to capitalizing on the improving market is to use your equity for investment into your home rather than use it as cash or for other expenses. If you do that, the value of your home will continue to increase over time.