Mortgage Market Stabilization means new Home Improvements are Next

Javi Calderon
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.



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