“People don’t want granite countertops — they want marble costing at least 25 percent more,” said Mroz, owner of Michael Robert Construction in Westfield, an affluent town less than an hour’s commute to Manhattan. “Money is so cheap today, people can splurge on $1,000 faucets.”
– From today’s Bloomberg News article: Faucets at $1,000 Abound as Home Equity Spigot Opens
It’s interesting, disturbing and pathetic that this article emerged so shortly after I highlighted the fact that there is about to be a huge, and potentially disruptive reset in home equity loans over the next several years. So while we are still dealing with the ramifications of the prior housing bubble and the HELOCs associated with that debacle, we are right back at it. Extracting additional equity from another phony housing bubble to remodel homes that likely aren’t worth anywhere near what people think once private equity and money laundering oligarchs are done with their binge buying.
As I have said many times before, QE makes a society lose its mind. From Bloomberg:
A year ago, New Jersey contractor Michael Mroz’s customers were focused on saving money when renovating kitchens and baths, he said. Now, with a resurgence of home equity lending, they’re ready to pay for the best.
“People don’t want granite countertops — they want marble costing at least 25 percent more,” said Mroz, owner of Michael Robert Construction in Westfield, an affluent town less than an hour’s commute to Manhattan. “Money is so cheap today, people can splurge on $1,000 faucets.”
Spending on home renovations is rising to records as banks such as Wells Fargo & Co. and JPMorgan Chase & Co. increase lending for home equity lines of credit, or Helocs, after property prices this year gained at a pace not seen since the last housing boom. Heloc originations could rise 16 percent this year and reach another five-year high in 2014, according to Mustafa Akcay, an economist for Moody’s Analytics, powering the earnings of Home Depot Inc. and boosting the economic expansion.
Helocs were used during the housing boom to cash in on surging property values to spend on cars or take vacations. Often, lenders allowed the loans to exceed property values by 25 percent on the supposition that home prices were only going up, Gumbinger said.
Home equity production at Bank of America for the first nine months of 2013 was $4.4 billion, an increase of 69 percent from the first nine months of 2012 when production stood at $2.6 billion, according to Terry Francisco, a spokesman.
Renovation spending this year probably will rise to an all-time high of $146.1 billion, according to Harvard’s Baker. Last year, the spending was $126 billion, he said.
“People aren’t cheaping out anymore because more of them are getting Helocs instead of saving up cash,” said Mroz. Getting a Heloc is “a lot easier to do with home prices coming back,” he said.
Good lord.
Full article here.
In Liberty,
Mike
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My parents are currently undergoing a $35,000 renovation to their house’s siding. To be fair, it does need to be done, but I wish they’d have considered a solar power system instead. I hope to God that I am wrong. Everyday.
ALSO, my school district is planning on spending $50 million on a new school. They say it won’t cost taxpayers a dime, but now says they may have to rewrite the plan from scratch because long term interest rates are rising. These people are insane. No one seems to be able to think rationally about where we’re headed. Hey assholes, it’s not 1955.
I was just making a similar comment to a family member this afternoon. The people who are doing well are spending lavishly on the most ridiculous items. The lower end (the rest of us) are being a lot more careful with their spending. At least that’s what I’m seeing on my eBay side business. Low end goods are a real dead zone.
It feels more like the 2009 holidays. So, HELOC piggy bank to the rescue?