Business for home equity lines of credit is coming back at some local mortgage lenders.
As home prices rise and more property owners feel confident about the value of their homes again, they’re starting to come to the bank to borrow money against the asset, major Dayton mortgage lenders said.
Homeowners are also investing because they feel better about their job situations, said John Fickle, U.S. Bank senior vice president and regional manager. Some property owners are choosing to invest in their homes after holding back for several years.
“We’re starting to see customers say I feel more comfortable in making an investment in my property,” Fickle said. “But we’re not all the way back because the country isn’t all the way back,” Fickle said.
Borrowers typically use home equity lines of credit for a major improvement project, such as remodeling, adding a deck or finishing a basement, for example. It is not the same as a loan.
A credit line works similar to a credit card with a revolving balance; whereas a loan is for a fixed amount paid down in installments over a specified period of time.
“The lion’s share of funding for home improvement projects comes from home equity lines of credit,” said Joe Harkleroad, founder and owner of Brentwood Builders of Cedarville.
Before the economic crisis started at the end of 2007, homeowners borrowed against equity in their homes to pay for college tuition, a new car or other big ticket items. It’s still used for that too, but lending standards have tightened and spending patterns have changed, Fickle said. People were able borrow up to 100 percent of their home value, mortgage experts said.
The number of Dayton area customers borrowing home equity lines of credit rose 36 percent at U.S. Bank in 2012 from 2011, making Dayton a top growth market for the product within the Minneapolis, Minn.-based bank, the company said.
“The biggest advantage of the line of credit over the loan is the fact that it’s reusable to you,” said Fickle, of U.S. Bank. He is based in Cincinnati, but oversees the bank’s branch network throughout Cincinnati, Dayton and Northern Kentucky.
A homeowner might say, “I don’t know exactly what I’m going to spend or how I’m going to spend it, but I know I can use it,” Fickle said. “Then when that next project comes along, the credit is available to me.”
The bankers say a growing number of customers for home equity credit supports evidence of an improving housing market. Demand for credit based on home values dried up in the years following the national economic crisis. The crisis sent many homeowners into foreclosure, unable to afford their mortgages due to job loss or a dramatic rise in interest rates. Other homeowners were sent “underwater” into a negative equity mortgage, where the amount owed is greater than the value.
Sales prices of existing Dayton-area homes declined year-over-year for six consecutive years. Last year for the first time since 2005, the average sold price for single family homes and condominiums in the Dayton metro rose in step with a higher number of homes selling. The average sold price over the whole year 2012 was $122,425, up 5.6 percent from the average sales price in 2011, including sales in Greene, Montgomery and Preble counties and part of Warren County, according to Dayton Area Board of Realtors.
However, the average sales price still sits 24 percent below the peak reached in June 2006 of $150,752, according to the Dayton realtors group. The most recent existing home sales information for the January to March quarter 2013 shows an average sold price of $114,522 in the Dayton metropolitan area, according to the board of realtors.
U.S. Bank attributes home equity credit growth to improving market conditions, as well as to the bank’s marketing efforts.
In the last five years, Fickle says U.S. Bank has become one of the five largest mortgage lenders in the U.S.
“Dayton is a lower market share for U.S. Bank. In Dayton, market share’s under 10 percent. We’ve got much more opportunity to bring in relationships,” Fickle said. “We’re gaining market share from other banks in Dayton.”
Wright-Patt Credit Union, based in Fairborn, saw home equity line of credit volume rise 14 percent in the first quarter of 2013 versus the same quarter of 2012, in terms of number of credit lines extended.
“For the period of ‘08 through most of ‘12, we were seeing declines in the market. So people had less equity than they did in ‘06 or ’07,” said Tim Mislansky, Wright-Patt chief lending officer. “I think it’s a positive sign that potentially more people are feeling more comfortable about the value of their home and they’re willing to borrow against it.”
The Dayton market’s biggest mortgage lender, Union Savings Bank, could not be reached for comment.
Delinquency and foreclosure rates are still historically high. Thirty-six percent of Montgomery County homeowners were underwater at the end of 2012, higher than state and national averages, according to Zillow Inc.
Look for our ongoing coverage of the area’s housing market as it changes with the economy.