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Home equity hits record high, and here's how homeowners are spending it

  • Remodeling spending topped $152 billion in 2017, and is forecast to increase in 2018.
  • Homeowners are using home equity cash to pay down other debt in order to lower monthly payments.
  • But homeowners are increasingly taking the cash out to make more cash.

Homeowners are racking up record amounts of home equity, thanks to fast-rising values in today's competitive housing market. No surprise, more people are now starting to tap that cash. What are they spending it on? Mostly making their homes even more valuable.

Renovation spending is soaring, and 80 percent of borrowers taking out home equity lines of credit say they would consider using that money to renovate, according to a survey released in December by TD Bank.

"We're not only seeing more requests for proposals, but more committed projects from home owners," said Steve Cunningham, a remodeler from Williamsburg, Virginia, in a report from the National Association of Home Builders. "In addition to regular updates and repairs, there's been an uptick in more ambitious large remodel requests."

Remodeling spending topped $152 billion in 2017, and renovations for owner-occupied single-family homes will increase 4.9 percent in 2018 over 2017, according to the NAHB. That does not include remodeling done by investors looking to flip or rent properties, both of which are increasing as well.

A home improvement contractor works on a house in Cambridge, Massachusetts.
Suzanne Kreiter | The Boston Globe | Getty Images
A home improvement contractor works on a house in Cambridge, Massachusetts.

"Below-normal rates of home building are creating an aging housing stock," said Paul Emrath, vice president of survey and housing policy research at the NAHB. "Factors inhibiting stronger growth include the ongoing labor shortage and rising material prices."

An older housing stock, combined with not enough new homes being built, means more people will choose to renovate.

Homeowners are also using home equity cash for education expenses and to pay down other debt in order to lower monthly payments, but there is a new and increasingly popular use: taking the cash out to make more cash.

"Essentially there is a confidence from some homeowners in the overall market that indicates to them that they can generate a return on their money at a rate greater than the cost of borrowing it," said Matthew Weaver, vice president of sales at Finance of America Mortgage.

He also said there is now a strong confidence among borrowers that home values will continue to rise, making it less likely that borrowing against their homes even more will not end up putting them underwater on their mortgages in the future.

For some that means investing in the stock market. For others it is buying more real estate. Rental demand is still very high, especially for single-family homes, and a new breed of rental management and investment company is making it much easier to become a landlord.

And of course, "Some are looking to profit from the popularity of cryptocurrencies such as bitcoin," added Weaver.

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