January 16, 2012
Nation's Building News

The Official Online Newspaper of NAHB

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Small Builders and Remodelers
New NAHB Study Shows Importance of Home Equity Loans to Remodeling
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A recent study published on NAHB's Eye on Housing blog highlights the importance of home equity loans for funding home improvement spending and examines the impact of a recent decline in the use of home equity loans on the remodeling sector.

The study also focuses on the positive effects of the residential energy-efficient tax credits, which helped mitigate the impact of a significant withdrawal in home equity lending during the recession.

Data from the Census Bureau's American Housing Survey show that the percentage of home equity loan dollars used for home improvement has grown in recent years — from about 48% in 2005 to 49% in 2007 and 51% in 2009.

The NAHB study charts remodeling spending against net home equity withdrawals over these years, showing that there was a strong correlation between the two until the onset of the housing crisis — when that linkage was weakened by a dramatic contraction in home equity loan use.

However, this was also a period when Congress significantly boosted tax credits available to home owners to make energy-efficient improvements to their homes. The data show that spending on remodeling projects was actually $21 billion higher in 2009 than it would have been without the tax credits.

IRS data for 2009 indicate that $25 billion of qualified improvement spending was claimed on tax forms to generate nearly $6 billion in realized tax credit claims.

Further validating the relationship between energy-efficient tax credits and spending, the study also points to Census data showING a notable decline in home improvement spending during the third quarter of 2011, just as the 25C remodeling tax credit was nearing expiration.

In all, the NAHB study demonstrates the importance of access to home equity loan debt for the remodeling sector and the significant impact that tax credits for energy-efficient remodeling had on the remodeling sector during the recession.

For more information, email Rob Dietz at NAHB, or call him at 800-368-5242 x8285.

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