Mortgage Market Stabilization Means New Home Improvements are Next
Spring is coming, and with it comes
the yearly ritual of cleaning and refurbishing that follows the dreary winter
months. Homeowners take on all kinds of projects, from preparing their taxes,
to cleaning the gutters.
The Joint Center for Housing Studies at
Harvard University predicts that many Americans will be doing more than just
painting their homes this spring. Thanks to a combination of factors,
including: rebounding home sales, low mortgage loan interest rates and
financing costs, and a resurgence in the construction industry, the JSCH
expects many more homeowners to spring for major home improvement projects.
Spending on home improvements and
maintenance has been trending downwards since 2007. That year, Americans spent
$328 billion on remodeling that year. In 2011 spending was down to $275
billion. Experts predict that the industry grew by 12% in 2012, projecting a
total of almost $300 billion for last year.
The growth in improvements,
however, does not mean an increase in financing to pay for it. Getting a loan
to pay for remodeling projects requires the borrower to have equity to borrow
against. Almost a fourth of all the mortgages in the United States had negative
equity in 2012, and banks typically require the borrower to have 25 to 30%
equity in their home in order to approve them for a home improvement loan. The
silver lining to this story is that over 1.4 million borrowers shifted from
negative to positive equity in 2012.
Those homeowners who do have more
than 20% equity in their home were 30% more likely to make improvements to
their homes than those with low or negative equity. More good news: the drastic
decline in home values since 2008 will now start to benefit the home remodeling
industry, as buyers look to add value to their new properties.