It's almost always a smart idea to use home equity funds to add improvements to your home, but not to buy luxury items. We at Downs Financial, Inc. advise our customers not to use home equity loans to create more debt. It is not a good idea to use a home equity loan, for example, for a boat that you can't afford. Just because you took out equity doesn't mean you can now "afford" the boat. You just created debt upon debt, and this is never a good idea.
Especially in the middle of a booming market, the fear of a real estate "bubble" will prevent many homeowners from even considering a home equity loan. A bubble is a sharp rise in property values, coupled with a decline in interest rates that eventually "pops" when it supercedes its abilities in the market. At this point, those with little equity or over-inflated property values can experience a sharp decline in their home's worth.
Experts agree, though, that the trends in most major markets have been steady enough to qualify as only a boom, which is just steady growth that will not have a major backslide. This is good news for buyers and sellers. It means that you will be able to accurately predict the trends in houses based on current and recent market conditions.
However, you don't have to be an expert on the subject or have a keen analysis of the market to know whether or not it's a good time for a home equity loan. Improving your home is always a good idea, even if the market slumps. You will have the advantage of improved resources, which will keep your home's price higher.