Good Housing Market Boosts Demand for Equity Loans

YOUNGSTOWN, Ohio — With the arrival of spring, bankers see a rebound in home equity lending. But this year demand has surged well ahead of last year, four bankers report. An improving and healthy housing market undergirds the number of loans taken out, they say.

“In the first two months of ’17 versus the same two months in ’16, volume is up 93%,” reports Mark Witmer, senior executive vice president of Farmers Bank in Canfield and its chief banking officer.

Huntington Bank closed on 10% more home equity lines of credit last year than in 2015, says Melissa Ciofre, a vice president and manager of its Federal Plaza office in downtown Youngstown. And demand remains strong this year.

“We’re starting to see an increase in demand,” says James D. Horvath, vice president and director of consumer lending at Home Savings Bank, Youngstown.

“In springtime, we always see a big lift,” adds Barbara Radis, executive vice president and Home Savings retail banking chief.

“This is the time of year it happens,” says Peter J. Asimakopoulos, executive vice president of First National Bank of Pennsylvania and its Youngstown market president. “Both types of home equity loans, fixed-term and lines of credit.”

The surge in demand is reflected in Home Depot sales and earnings, a spokesman for Huntington Bank suggests. Its fourth-quarter earnings, buoyed by rising home values, exceeded Wall Street’s expectations, he says.

Emails to reach a Home Depot for comment were not returned. Its media relations voice mailbox was filled.

In February, CNBC reported that Home Depot’s fourth-quarter sales were 6.3% higher than the same quarter in 2015 and that its customers were spending 2.9% more per transaction.

A Wall Street analyst told CNBC, “People are spending on their homes.”

The four bankers interviewed for this article agree. While home equity loans are used to finance auto purchases, post-high school education, consolidate credit-card debts, even pay for that dream vacation, most use the proceeds on their residences.

Witmer, Horvath, Ciofre and Asimakopoulos say most of their customers favor taking out or drawing down on a line of credit because the interest paid is tax deductable and the rate of interest is lower.

To promote home equity loans, banks have been offering introductory rates, waiving closing costs and appraisal fees, and the annual fees the first year.

Expected to spur demand is the Fed Open Markets Committee raising the interest rate a quarter point last month with more hikes expected to come this year.

Customers tend to apply for a home equity loan where they took out their first mortgage, the bankers say. The bank has the paperwork from their first mortgages and knows them.

Sometimes the customer has just taken out a first mortgage with a 20% down payment and then applies for a home equity loan, Farmers’ Witmer says. “It’s more like an insurance policy if repairs are needed,” he explains.

Influencing homeowners to remodel or enlarge their houses is a tight inventory of houses for sale in their price range, Witmer says.

Most new residential construction is for houses priced in the $350,000 and above, says John Burgan, a principal in Burgan Real Estate, Boardman. Contractors can’t profitably build houses for working-class and middle-income families.

“Inventory is at a record low,” says Taylor Baker, a real estate agent in the Poland office of Howard Hanna and one of Witmer’s daughters. “Houses here sell quickly. We constantly see multiple offers, often above the asking price” and occasional bidding wars.

That leaves many middle-income homeowners who would like to move into a larger house no choice but to add on the house they own. They’ve built equity in their residence and use it to improve the basement, add a bedroom or family room.

Or they are fixing up their house before putting it on the market in hopes of moving to a more expensive residence, Burgan says. “I always recommend to homeowners to fix up their houses,” he says.

Farmers is seeing “a large demand for new construction loans,” Witmer reports, not just for home equity loans. “The shortage of homes for sale [means] more home construction.”

“Huntington is working to get word out that a home equity loan is the best way to finance improvements,” Ciofre says. A couple on the West Side, John and Viola Shuey, was going to finance the installation of new hardwood floors on a credit card.

Ciofre told the Huntington customers of 20 years that a home equity loan would save them considerable interest expense.

“We saw the ad on TV for Empire [Today] carpets and floors,” Mrs. Shuey says, and mentioned her intent to Ciofre. That was six months ago, Shuey says, and Ciofre advised using a home equity loan rather than a credit card to finance the $20,000.

“We have the new hardwood floors and bought some new furniture too,” Shuey says. “We’re very happy. She [Ciofre] was very professional.”

So the Shueys have payments of $350 a month instead of $400 or $500. The Huntington loan (secured) was 3.99% instead of a credit card (unsecured) that charge anywhere from 11% to 29.99%.

The value of residential real estate lost in the wake of the housing bubble bursting and the Great Recession has nearly returned, Home Savings’ Radis says. “We see the appreciation of real estate,” she says, a factor that gives customers both the confidence and means to take advantage of the equity they’ve built.

The majority of home equity loans are lines of credit, “80%,” Witmer says. The other bankers agree.

Farmers’ customers tend to use their lines, pay them down and then tackle a second renovation, he says.

The rise in rates is likely to spur some Home Savings’ customers into converting their lines of credit to fixed-term loans so they can lock in before rates rise further, Radis says.

More often homeowners want to convert because they’ve made the improvements they wanted and want the peace of mind a fixed-rate, fixed term loans provides.

Copyright 2022 The Business Journal, Youngstown, Ohio.