No Bubble to Burst on Remodeling
The latest report from Harvard University’s Joint Center for Housing Studies was recently released and the highlight for those who track the residential construction industry is their assertion that despite high prices for housing, the conditions are not right for a bursting bubble.
The report tracked historical data about the economic conditions during the times when there have been major home-price reductions over the past 30 years. Importantly, those times have been characterized by overbuilding of new homes along with job losses. The report states that although there is evidence of overbuilding in many parts of the country, the employment picture is bright, with the economy adding enough jobs to pick up the slack.
“As long as the economy continues to create jobs and builders trim production to match slowing demand, house prices will keep climbing and the housing sector will achieve a soft landing,” says Nicolas P. Retsinas, director of the Joint Center.
The drivers of the remodeling market, however, are quite distinct from new construction, although there is a correlative affect regarding home prices. As housing prices have risen generally, many homeowners have seen dramatic increases in their home equity. Many have taken cash out through the re-finance process. And studies show that on average about 35 percent of that cash is rolled back into home improvements and repairs. In 2005, homeowners cashed out $450 billion in home equity… a record. So when we talk about the prospect of house price declines, we also talk about the a reduction in home equity and ultimately a lower level of remodeling activity attributable to cash-outs.
You can view the full report here: http://www.jchs.harvard.edu/publications/markets/son2006/index.htm.
Thanks Pat–good info to have.
As long as god isn’t making more land, the value of land won’t drop very much, if any. In the past, including the depression, the value of houseing doesn’t drop very much on the whole. Some housing markets may take a hit here or there, but not for long before thay climb back and past whatever loss thay had. In short, if your town is taking a hit, sit tight, it’ll come back!
“So when we talk about the prospect of house price declines, we also talk about the a reduction in home equity and ultimately a lower level of remodeling activity attributable to cash-outs.”
House price declines are less of an issue for some.
More and more folks are using a Home Equity Line of Credit (HELOC) as a cancellation account to accelerate their home equity and payoff their home *years* sooner than listed on their mortgage amortization schedule.
Unfortunately, today’s Real Estate market means that folks can no longer count on appreciation to build home equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using a Home Equity Line of Credit to ‘power’ the Money Merge Account™ financial solutions program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest, whenever possible, (2) Use other people’s money, whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
I’d be happy to provide further details…