The Return of Home Equity - Banktime.com - Dolsterica9's blog

It?s like d?j? vu all over again, as they say. Across the country, the proverbial Jones (as in, those one ?keeps up with?) are once more taking tropical vacations, buying new cars, and installing in-ground swimming pools as their neighbors silently wonder how on Earth it is being afforded. Welcome to the new 2006? home equity is back, and homeowners are getting comfortable tapping it again. The CNW Research firm of Bandon, Oregon reported recently that nearly seven percent of all folks buying a new car in the first half of this year did so with the proceeds from a home equity loan. That?s a jump of fifty-two percent from the first six months of 2011, to put things in perspective. Experts consider it to be the first meaningful jump in terms of home equity loans used as new car purchase funds since the decline of home equity that accompanied the market crash of 2008. Some optimists are also viewing this trend as proof positive that the housing market may finally be righting itself after several tumultuous years adrift at sea.

Extravagant, widespread utilization of home equity funds was a hallmark of the pre-2008 housing bubble. In 2006 and 2007, sales of big-ticket items like cars and appliances hit record levels as homeowners happily tapped skyrocketing equity levels driven by quickly increasing home values. Although the logic ? or lack thereof, rather ? baffles the mind now, a lot of homeowners reasoned that home values would continue to rise indefinitely, and so treated their equity like some sort of found money. Of course, the housing crash broke up that party really fast. With home values tanking and equity drying up like a puddle in the summer sun, home equity loans all but withered on the vine. Adding a new twist to the equity rollercoaster, however, is the fact that equity lending seems to be making a comeback.

The biggest gains in home equity loans are being seen in areas where the housing market has stabilized to some degree. The states of California, Colorado, Florida, Illinois, New Jersey and Rhode Island have seen over ten percent of new car buyers finance their vehicle with home equity loans, as per CNW?s data. Those numbers are definitely below what we were seeing in 2007 at the apex of the home equity blitz, but still lively enough to keep car sales from falling, even as the overall economy weakens.

Of course, any increase in the home equity lending field is considered a positive sign that the housing market is on the mend. Keith Leggett, senior economist at the American Bankers Association, shared his opinion that ?the housing market has probably bottomed.? If so, lenders will therefore be more confident about extending home equity loans, since they are less likely to do so in markets where prices continue to plummet. The buyers currently eligible for home equity lending are most likely to be of wealthier means, have good credit, and have owned their homes for a long enough time that they have equity that wasn?t zeroed out by the housing bust (which brought prices down by an average of one-third, or thirty-three percent, as per the S&P/Case-Shiller home-price index). If you manage to qualify for a home equity loan, it can be a canny move to use the money to buy a car or to finance another big purchase, since the interest on home-equity loans is usually deductible. It goes without saying that such a deduction simply does not exist for ordinary car or consumer loans. Depending on what you buy, a home equity loan instead of an alternate type of lending stands to reduce the overall out-the-door cost of a major purchase by thousands of dollars.

There are signs that consumers are getting comfortable again for using home equity loans for different types of purchases, too. Harvard University?s Joint Center for Housing Studies predicts that spending on home improvements will pick up by the end of 2012 and grow by double-digits in 2013. That forecast doesn?t exactly measure home-equity lending in and of itself, but it does definitely give some positive indicators, since many homeowners use home-equity loans to improve or expand their homes. In times of previous recession, the housing market has been a vital area driving recovery. Unfortunately, this time around, housing has actually been a huge part of bringing us down. A revitalization of home equity lending certainly wouldn?t be an overall economic panacea, but it would certainly breathe some much-needed life into a moribund industry. We may never see the market get back to its bubble conditions ? and maybe that?s a good thing! ? but we might hope to see it get back to something approaching normal, whatever that is.

Source: http://banktime.com/home-equity/the-return-of-home-equity/3145/

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Source: http://dolsterica9.typepad.com/blog/2012/08/the-return-of-home-equity-banktimecom.html

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