If you made a late-night trip to your local hardware store yesterday for some supplies, 10 minutes before they close (you know who you are), you were probably not alone. Yesterday, Home Depot announced that their second quarter numbers were much better than anticipated and that they are expecting equally positive numbers the rest of the year. We have talked about the tariffs and construction woes in the past and how that could change the housing industry, but those are large scale changes that change the overall market and rarely impact the average borrower. Looking closer at your average Joe homeowner, they are more likely to be working on fixing up their home so that they can build equity and stay in their home for years to come.
According to a recent report by ATTOM Data Solutions, many homeowners are on their way to building equity as almost 25% of all homeowners with a mortgage have at least 50% equity in their home. The numbers vary drastically depending on what area of the country you look (check out their interactive tool for your local area), but with an overall trend of building equity, more borrowers may look to keep updating and remodeling. According to AARP, 90% of people 65 and older would prefer to stay in their homes as they get older. As we see homeowners staying in homes longer and continuing to build equity, we may see a push of cash-out refinances and HELOCs so homeowners can stay on top of the newest and best in their homes.
With equity continuing to rise in the industry, homeowners should also take a look at their current mortgage and see if they can use that equity to their advantage. A report from Black Knight shows that rates have slightly decreased since May (not that I need to tell anyone that good news) and that ARM loans are bracing for the impact of increased rates. Over the past 12 months, ARMs have rose over 0.5% and more than 0.75% over the past 24 months. The same study also shows that borrowers are prepaying their ARM loans at a rate 70% higher than fixed rate borrowers, perhaps trying to prevent the inevitable increase in their payments as rates continue to be on a roller coaster ride.
Will these ARM borrowers tap into the equity that they have been building in their homes and cash-out to install a new kitchen? I am not sure. What I do know is, home prices continue to rise for most of the country and using that equity to their advantage can put many homeowners in a better financial position (or at least get that breakfast nook finished up).
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.
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