Home renovations up 6.1%, financed by cheap money

REAL ESTATE WATCH

April 27, 2003|By Bloomberg News

U.S. consumers increased spending on their homes at a 6.1 percent annual pace in the first quarter, as low mortgage rates allowed homeowners to take out loans to make renovations, says a report from Harvard University's Joint Center for Housing Studies.

Homeowners spent $119.9 billion on renovation supplies such as floor tile and kitchen sinks during the 12 months that ended March 31, compared with $113.0 billion a year earlier, according to the center in Cambridge, Mass. The increase in spending follows a 5 percent gain during the fourth quarter.

Mortgage rates near a 40-year low have fueled refinancings and enabled homeowners to take out bigger loans and gain extra cash, helping to sustain the economy. About 35 percent of this extra cash is spent on home remodeling, said Kermit Baker, director of the center's Remodeling Futures Program.

"Home prices have continued to increase and mortgage rates have continued to stay low, and that's made it possible for more people to take equity out of their homes for remodeling projects," Baker said.

Refinancing volume reached a record $1.46 trillion last year, and is expected to total $1.55 trillion this year, according to the Mortgage Bankers Association of America.

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