Tuesday
July 22, 2014

Home Equity Lines of Credit Return

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Home Equity Lines of Credit Return

Some are calling it the revival of home equity lines of credit: Helocs rose 30 percent in 2012, reaching the highest level since the beginning of the financial crisis in 2008, according to research by Moody’s Corp. What’s more, originations for Helocs are projected to go up another 31 percent next year.

The rise in home equity lines has given the overall economy a boost in consumer spending. More consumers are buying televisions and refrigerators with their home equity lines of credit, Reuters reports.

“If house prices continue to rise, home equity lending will keep rising,” says Mustafa Akcay, a Moody’s Analytics economist in West Chester, Pa. “Lenders have been worried about the ability of consumers to pay back their loans, and as the economy improves, that concern is easing.”

Home owners are spending more of their renewed equity, says Chris Christopher, an economist at IHS Global Insight in Lexington, Mass. “It won’t be as much as they spent when prices were gaining at a rapid pace in 2005 and 2006, but it should have a positive impact on consumer spending.” 

The biggest use of Helocs today is to fund home renovation and repairs, according to Commerce Department data.

Helocs were once blamed for prompting Americans to use their homes “like credit cards to go on spending sprees during the 2000 and mid 2006 real estate boom, tapping their equity to buy cars, televisions, and luxury cruises,” Reuters reports.

Some are worried about the growth in Helocs once again.

“Having been chastened by the downturn, lenders are wary,” says Keith Gumbinger, vice president at HSH.com, a mortgage data firm. “If a home goes underwater and the owner stops paying a Heloc, that lender may get nothing back because the collateral is gone.”

Source: “Home Equity Loans Make Comeback Fueling U.S. Spending,” Reuters (Nov. 26, 2012)