If rising mortgage rates scare potential buyers out of purchasing a new home, they may just stay put and renovate.
Kermit Baker, a Senior Research Fellow at the Joint Center, writes for Housing Perspectives that owners who purchased a home over the last five years have secured low mortgage rates, and trading up will require a higher rate loan. Home improvement borrowing, therefore, is likely to increase.
Those owners who want to tap into their growing levels of home equity to finance their home improvement projects are likely to rely on home equity lines of credit rather than cash-out refinancing. ... In the coming months as rates trend up, the gap between home equity borrowing and cash-out refinancing is likely to widen, which, unfortunately, will expose these home equity borrowers to future hikes in short-term rates.