By Rachel Lerman & Elena Lacey | The Washington Post (abridged)
Home renovations are popular this year, with home equity loan originations jumping 12 percent during the first quarter. As home values have risen, people are borrowing against their most valuable asset.
One of the main reasons to take out a home-equity loan is to remodel your home, an option people are turning to this year because it is expensive and difficult to buy a new home, with mortgage rates still elevated and new homes stagnant on the market. People also take them out to lower their overall debt interest rates.
“Home improvements and debt consolidations are the top reasons,” said Linda Bell, home equity analyst for Bankrate. But she cautions that the loans, though they may be accessible, are types of second mortgages, and it can be tough to assume extra costs.
Buying a new home may not get dramatically easier anytime soon — new residential building permits were down 11 percent in August compared with last year, a traditional warning sign for a possible recession.
“That’s one indicator signaling we’ve got a problem,” said Mark Zandi, chief economist at Moody’s Analytics, referencing building permits. “But in this case, I think it suggests a tough economy but not recession.”
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