Home equity hits record high, and here's how homeowners are spending it

Homeowners are racking up record amounts of home equity, thanks to fast-rising values in today’s competitive housing market. No surprise, more people are now starting to tap that cash. What are they spending it on? Mostly making their homes even more valuable.

“Below-normal rates of home building are creating an aging housing stock,” said Paul Emrath, vice president of survey and housing policy research at the NAHB. “Factors inhibiting stronger growth include the ongoing labor shortage and rising material prices.”

An older housing stock, combined with not enough new homes being built, means more people will choose to renovate.

Homeowners are also using home equity cash for education expenses and to pay down other debt in order to lower monthly payments, but there is a new and increasingly popular use: taking the cash out to make more cash.

“Essentially there is a confidence from some homeowners in the overall market that indicates to them that they can generate a return on their money at a rate greater than the cost of borrowing it,” said Matthew Weaver, vice president of sales at Finance of America Mortgage.

He also said there is now a strong confidence among borrowers that home values will continue to rise, making it less likely that borrowing against their homes even more will not end up putting them underwater on their mortgages in the future.

For some that means investing in the stock market. For others it is buying more real estate. Rental demand is still very high, especially for single-family homes, and a new breed of rental management and investment company is making it much easier to become a landlord.

And of course, “Some are looking to profit from the popularity of cryptocurrencies such as bitcoin,” added Weaver.

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Economy

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