Homeowners are watching their home equity levels rise, but tapping into this pool of home equity to finance remodeling projects remains difficult in today’s lending environment.
While the hope was rising equity could support the issuance of home equity loans by banks and potentially increase the pool of borrowers eligibile for refinancing, many institutions are gun shy about investing in new products and providing home equity lines of credit. And this is unfortunate because more homeowners are now interested in restoring their properties, Fitch Ratings claims in a new report.
To put it into perspective, homeowners watched their equity increase $571 billion in the second quarter of 2013, and $2.2 trillion over the past year, according to research firm Compass Point Research & Trading.
Although this is an impressive trend for the home improvement sector, challenges still remain that could derail a sustained rebound in home remodeling spending.
Bank lending standards are easing a bit but remain relatively tight, making it difficult for homeowners to use credit finance remodeling projects, pointed out Fitch Ratings analysts Robert Rulla, Robert Curran and Philip Zahn.
It’s important to note that other challenges remain for the home improvement sector, including elevated unemployment levels and weakening consumer confidence relative to historical patterns.
Regardless, Fitch expects remodeling spending to pick up for the remainder of the year and into 2014 as homeowners revisit restoration projects once deferred.
“Most investments in home improvements over the past few years were focused on necessities,” Fitch Ratings analysts said.
They concluded, “Now there are indications homeowners, although still cautious, are somewhat more willing to undertake discretionary projects and purchases.”