Realty Check

Homes get makeovers as more mortgages are back in black

Hundreds of thousands of U.S. homeowners are coming back into the black on their mortgages, and that makes them feel better about their homes in general. When people feel better about their homes, they pour money back in.

"We had three new inquiries yesterday," Michael Bruckwick, a busy architect in Bethesda, Md., said on Tuesday. "People may have waited a year or two or three, but it's the reality of life and raising families that keep growing."

Carpenters renovating a home in Cohasset, Mass.
Melanie Stetson Freeman | The Christian Science Monitor | Getty Images

Bruckwick says most of his clients have also looked around at buying new homes, but either can't find anything they like or what they do like is too expensive and still needs work. That is why they are choosing to stay put and remodel.

(Read more: Home builder confidence ends year on high note)

Architecture billings nationwide hit their highest level in seven years, and inquiries for new projects are also way up, according to the American Institute of Architects' third-quarter home design survey.

"These are the best conditions at residential architecture firms since prior to the housing bubble bursting," said the AIA's chief economist, Kermit Baker.

The return of home equity, thanks to rising home prices, has played a key role in the gains: 791,000 borrowers moved back into positive equity on their mortgages in the third quarter of this year, according to a new report from CoreLogic. While 6.4 million are still underwater, that is down from 7.2 million and a return of nearly $34 billion in home equity.

Homeowners, however, are not necessarily using that newly gained equity to finance their projects.

(Read more: Looking to play the rental market? Blackstone wants you)

"Cash, good ol' greenbacks," said Baker, is still king. Historically about two-thirds of remodeling is financed with cash, but today more like 75-80 percent of homeowners are using cash. After the housing crash, they are leery of over-leveraging. It seems the return of equity is not fueling the surge in remodeling, it is fueling homeowner confidence.

"Most homes have been underinvested in during the last several years, because you didn't want to put money into your home if you didn't know where the value of your home was headed," said Baker. "Now there is just some comfort level."

The work, however, is still midlevel. Additions and kitchens and baths rank highest in activity, but Baker says the really high-end work that was being done during the last boom (2004-2007) has not really returned.

Home builder confidence rises
Home builder confidence rises

That bodes well for home improvement retailers like Lowe and Home Depot, which have been the beneficiaries not just of owner remodels but of investors remodeling distressed homes to rent. Nationally, residential remodeling permits are up 7 percent year-to-date, according to an index from BuildFax.

(Read more: The healthiest housing markets? It may surprise you)

While there is concern surrounding rising interest rates, those increases may actually be a boon to the remodeling business. Millions of homeowners refinanced into fixed-rate loans over the last five years, taking advantage of historically low rates. If they move, they'll lose those rates, so many will choose to stay put and upgrade their current spaces.

By CNBC's Diana Olick. Follow her on Twitter .

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