Ever since the epic housing crash of the last decade, homeowners have been incredibly conservative with their housing debt.
Home prices rose, at first slowly and now quite dramatically, yet owners held back on taking out all that new-found equity. That is about to change — by a lot.
About 10 million homeowners are expected to take out home equity lines of credit in the next four years, according to a new report from TransUnion.
That would be more than double the amount of originations between 2012 and 2016. This comes as the amount of available home equity has jumped to more than $13 trillion today from $6.3 trillion in 2011, the bottom of the last housing crash.
HELOCs, which are often loans after the primary mortgage, usually rise and fall along with home equity, but that didn’t happen following the recession. There was a significant pullback in lending, as banks considered the loans too risky and too difficult to originate, given the stricter underwriting guidelines that were implemented.
Some lenders got out of the business because there just wasn’t enough demand. Borrowers simply didn’t have the equity because home values had fallen so far. Even as values rose, borrowers didn’t rush in immediately.
Still, the demand will likely be there, as consumers use their home equity for several reasons. First, they will use it to repair and renovate their homes. With the housing supply so low, more homeowners are staying where they are, unable to find or afford a move-up home. Instead, they add on or upgrade what they have. Remodeling activity has been rising steadily and more dramatically this year.
“Recent strengthening of the U.S. economy, tight housing inventories, and healthy home equity gains are all working to boost home improvement activity,” Chris Herbert, managing director of the Joint Center for Housing Studies, wrote in a recent survey.
“Over the coming year, owners are projected to spend in excess of $330 billion on home upgrades and replacements, as well as routine maintenance,” Herbert said.