The
downturn in home sales may signal an uptick in home improvements
as homeowners, content on staying put, mull projects to
make their home more livable, attractive -- or valuable.
Upgrades
-- if done well -- can add monetary and intrinsic value
to a home. That's good for homeowners when buyers eventually
knock at the door. It's particularly good for homeowners
in markets where housing values are appreciating above
national norms. For every $1 they plow into their properties,
they may see a greater than $1 return in terms of added
value.
According
to the Commerce Department, home sales dipped more than
4 percent in July. Some experts forecast a 10 percent
slide in housing sales for 2006.
With
more homeowners staying off the moving merry-go-round,
improvement options may boil down to what the homeowner
can afford and how to pay for everything from materials
to contractor services.
This
may bring the old standby, the home equity loan, into
favor for many homeowners. The silver lining is that even
as homeowners sit on the real estate sidelines, most home
values continue to build. And as that value piles up more
money is available through home equity channels for home
improvements or other ways the homeowner chooses to spend
those funds.
Home
equity is the difference between the market value of the
house and the amount the homeowner has on left to pay
on their mortgage. If a home is valued at $250,000 and
the mortgage loan amount to be paid is $75,000 then the
homeowner has $175,000 in available equity.
"Even
as rates have risen, we still see home equity as the finance
option of choice for lots of homeowners,'' says Peggy
Lawlor, senior vice president for Bank of America. "It's
got the most flexibility and the homeowner knows even
as they sit back, their home continues to climb in value
over the long term.''
Lawlor
says the bank does not track how homeowners spend home
equity lines of credit, but "as we talk to homeowners,
home improvement is the primary use.''
While
some homeowners earmark home equity moneys for only pricier
projects, Lawlor says even less ambitious projects are
prime uses for home equity funds. "It's nice when
people can really upgrade their kitchens, but they ought
to consider home equity for smaller projects,'' she says.
She defines smaller projects as $1,500 and up.
While
consumers are tempted to whip out credit cards to pay
for just about everything associated with a project, they
might pause to weigh credit payments vs. home equity.
Credit
card interest can pile up in a hurry if the balance is
unpaid. Interest rates on unpaid credit card balances
can easily be near 20 percent, while home equity rates
are still in the single digit range.
Lawlor
says most home equity loans can be a pleasant tax write-off
even though funds are spent on items other than housing
improvements.
"That's
the real plus for using the value of your home to fund
projects and other uses,'' says Lawlor. ``It has tax benefits
normally not associated with other forms of payment.''
