Numbers Count: Top reasons for remodeling

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Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.

The numbers: Trends behind remodeling activity

Asian American couple with young son on a step ladder as he tries to help paint a white wall.A “desire for better/newer amenities” was the top reason customers remodeled their homes in 2014, according to remodelers in the National Association of Home Builders’ Remodeling Market Index (RMI) released May 13. On the RMI’s scale of 1 to 5 (where 1 indicates never or almost never, and 5 is very often), the desire for newer amenities scored an average of 4.4 in 2014. A need to replace or repair old components was a close second, and a need or desire for more space was the third most common reason for remodeling in 2014.

What counts: Remodeling frequently goes hand-in-hand with a home equity line of credit, or HELOC. As you build equity in your home through mortgage payments or price appreciation, that equity may provide some financial flexibility. Some home owners find having a home equity line of credit that they can tap for home improvements or other expenditures is a convenient and relatively low-cost way to take advantage of the equity they’ve built in their homes.

Home values in many regions have risen significantly in the past few years. Nationally, home prices in February were up 4.2% from a year ago, according to the most recent Case-Shiller National Home Price Index. If homes in your area have increased in value, it may be worthwhile to talk to a lender about the equity you have in your home and the possibility of securing a home equity loan or HELOC. Here are a few things to consider related to HELOCs:

  • Rates on HELOCs and home equity loans tend to be lower than rates on credit cards or auto loans, for example. This is because HELOCs and home equity loans are secured by the borrower’s home, and so lenders view them as less risky than other types of credit.
  • While they are popular for financing home improvements, HELOCs and home equity loans may be used for many purposes, including debt consolidation, educational expenses, and even family vacations.
  • The interest paid on a HELOC or home equity loan may be tax-deductible. But you should check with a tax professional regarding your situation prior to taking out such loans.
  • Keep in mind the risks associated with borrowing against the equity in your home. A home equity line of credit is secured by your home, which means your lender has a claim on your home (including the right to sell your home if needed) to recover the loan balance if you are unable to repay the line or loan.
The numbers: Mortgage rates inch upward

The average contract interest rate for a 30-year fixed-rate mortgage, with a conforming loan balance of $417,000 or less, increased last week to 4% from 3.93% the prior week, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey released May 13.

What counts: As rates have inched up to 4% on 30-year fixed-rate mortgages, refinance activity has slowed. Rising rates attract a lot of media attention, but keep in mind at 4% rates are lower than the average for 2014 and are still attractive from a historical perspective.

Keep in mind also that in another recent report, the Mortgage Bankers Association indicated that credit is getting easier to come by. Individual circumstances, of course, determine whether a person qualifies for a mortgage, but the overall trend of easing credit should be welcome news for consumers. Mortgage credit availability increased in April, according to the Mortgage Credit Availability Index (MCAI) released May 12 by the Mortgage Bankers Association. Of the four component indices, the Government MCAI saw the greatest easing (up 1.1% from the prior month), followed by the Jumbo MCAI (up 0.8%).

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