CAPITAL DISTRICT In late January, some very encouraging news came out of the housing market. According to CoreLogic, a leading consumer, property and mortgage analytics firm, home prices are stabilizing nationwide and the number of homeowners with negative equity decreased by 1.4 million in the first nine months of 2012—a trend that is forecasted to continue through 2013.
For homeowners who may be looking for a source of capital that doesn’t tap into savings and retirement accounts, this is very good news. First, if home prices aren’t falling, lenders are more inclined to let homeowners borrow against their home’s equity. Second, interest rates remain at record lows and look to remain so for the foreseeable future. What this means to you is this: your home, which is the largest investment you’ve ever made and a powerful financial resource that likely laid dormant during the recession, may now once again be a valuable tool to meet expenses or create opportunity.
Real estate as an asset
One outcome of last decade’s housing bubble was a change in thinking about real estate. Until then, most people thought of their home primarily as a residence. However, as property values skyrocketed and homeowners found themselves with a lot of equity in their homes, many people discovered the value of their home as a financial asset.
Home equity is simply the value of a home, minus any mortgages or liens owed. Homeowners can borrow against that equity, using either home equity loans or lines of credit, for many purposes. One of the most common uses of home equity financing is funding home improvements that benefit families not only by enhancing their lifestyles but also by increasing the value and selling price of the property. Families also use home equity to build or buy a retirement home, finance a child’s or grandchild’s education, purchase a new car or consolidating debts.