Home Equity Is a Reliable ‘Piggy Bank’ — In Some Areas

Home prices have rebounded since the 2008 financial crisis, making it easier for homeowners to build home equity and tap into it through reverse mortgages, refinancing or downsizing. But only in certain places can home equity act as a reliable “piggy bank,” writes The New York Times in a recent article.  

Some of the most robust growth projections for housing appreciation are for the coasts. California had the best performance over the last 20 years and is projected to grow a cumulative 30% over the next three years, according to the Local Market Monitor, which tracks housing prices.

Despite high taxes and the state’s budget and water woes, demand is still strong for the Bay Area and parts of Southern California. Tech start-ups and mature businesses seek locations around Silicon Valley and Stanford University, and the Los Angeles area is a cultural and business mecca, the NYT writes.

Elsewhere, prices are expected to rise 20% over the next three years in Florida, which in some areas suffered the most severe declines in the crash. Texas is also attracting new residents from the Midwest and Northeast and is forecast to grow by 20% to 30% in most areas.

“The key to home equity growth is a combination of strong local economies, building and jobs,” NYT writes. “People have to find an area desirable and want to move there from other places — the kind of mobility that virtually came to a standstill during the recession years. And as land for development becomes scarcer and demand grows for new retirement housing, home prices will benefit.”

But as the financial crisis demonstrated, home appreciation is far from guaranteed. Areas can be overbuilt, and speculators can drive up prices with cheap financing.

Reverse mortgages, which are often used to provide an income stream during retirement, can be complex and expensive, NYT writes. Instead, homeowners can get access to home equity through a “cash out” sale, selling their home and buying or renting a less expensive dwelling.

“For the most part, building home equity is a smart financial step for the overall net worth picture of individuals, yet it should not be a primary driver as a source for retirement income,” said Michelle Brennan Hall, president of Brennan Wealth Advisors in Addison, Texas.

Read the New York Times article

Written by Emily Study

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