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Numbers Count: Home remodeling index gains ground

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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.

Man in jeans with tool belt carries a ladder walking on an empty room's hardwood floor.The numbers: Remodeling of existing homes has fully recovered from the housing bust, and is 3.4% above its level in 2005 prior to the housing crisis, according to a new national remodeling index developed by BuildZoom and the Urban Economics Laboratory of the Center for Real Estate at MIT. While releasing the research Aug. 9, the developers of the index also pointed out that new home construction remains 60.7% below the 2005 level.

What counts: Whenever I read about home remodeling, I immediately think about home equity loans and lines of credit. A lot of homeowners tap the equity in their homes to pay for upgrades such as energy-efficient windows, new kitchen counters, or a bedroom addition.

The rise in home values plays into both the remodeling and home equity borrowing trends we’ve been seeing. In just the past year, nearly 1 million properties have appreciated to the point where owners have at least 50% equity in their properties, according to second-quarter data from RealtyTrac released July 30. Having sufficient equity can help put a homeowner in a position to tap some of that equity for remodeling or other expenditures.

Here are a few things to consider regarding home equity lines of credit (HELOCs):

  • Rates on HELOCs and home equity loans tend to be lower than rates on credit cards 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.
  • 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 trying to borrow against equity in your property.
  • Keep in mind potential interest-rate risks. HELOCs typically have adjustable rates that may rise as interest rates climb, meaning potentially higher monthly payments.
  • Finally, another risk: A home equity line of credit is secured by your home, which means your lender has a claim on your home to recover the outstanding balance if you are unable to repay the line or loan.
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