Few Dallasites are taking out loans to renovate their homes, according to a new study from loan exchange site LendingTree.
The city ranked 32 out of 50 major American metros for the rate of home improvement loans — typically a form of home equity loan — as a percentage of total housing units. At only 0.37 percent, Dallas was on par with Baltimore and Louisville, Ky.
Lenders in the Dallas-Fort Worth-Arlington metro area originated 10,324 home improvement loans last year and the median home loan amount was $55,000.
The study, which examined Home Mortgage Disclosure Act data from 2017, found that residents of most major Texas cities rarely finance renovations by borrowing against their home equity. Houston ranked near the bottom of the list, 48th, with a home improvement loan rate of just 0.27 percent. San Antonio came in at 44, while Austin fared better at 20.
"I would say that the cities that are seeing lots of home improvement loans, you can point to more dynamic economies, and then you have cities that are just undergoing renewal," said Tendayi Kapfidze, chief economist with LendingTree.
This explains why Oklahoma City and San Jose rank 1 and 2, Kapfidze said — they're in the midst of fracking and tech booms, respectively. In the case of Oklahoma City, it doesn't take much to rehab a home — the median improvement loan value there is just $15,000.
It also explains why cities, where long-struggling economies are beginning to pick up, like Pittsburgh (No. 4) and Detroit (No. 14), rank highly.
"There, it's relatively cheap to get into home ownership, you can invest a small amount in the home and get a good return on your investment," Kapfidze said.
Why, then, are people not borrowing in the same way in Texas, where generally speaking the economy is as dynamic as can be? Of course, some might be able to pay out of pocket.
Another likely explanation is the Lone Star State's infamously restrictive lending laws written into the constitution that date all the way back to the state's nationhood. That only changed this year, when voters passed Proposition 2, which allowed for greater flexibility with home equity loans and lines of credit.
Home equity loans, a common source of home improvement financing that generally carry with them lower interest rates than home improvement loans, weren't even legal in Texas until 1997, when voters approved an amendment excepting that loan product from a constitutional requirement that prevented creditors from seizing homesteads as a form of debt payment.
Texas was the last state in the country to allow home equity lending, said John Heasley, executive vice president of the Texas Bankers Association.
"It was an old law to protect the family from losing the home if the husband got drunk and lost the ranch in a game of cards," Heasley said.
And in 2003, voters approved Proposition 16, allowing borrowers to seek a home equity line of credit as opposed to a lump sum loan. But each time laws changed to allow more borrowing, consumer protections were still ironclad.
On one hand, this may have helped isolate the state from the bust of the housing market in 2007, but opponents say it also discouraged lending by limiting home equity loan refinancing and limiting home equity credit line advances unless the initial amount borrowed was below 50 percent of a home's market value.
This changed with the passage of Proposition 2, which boosted the home equity credit line principal amount to below 80 percent of a home's value, allowed for greater refinancing and permitted home equity loans against nondairy agricultural properties.
"So we'll have to see if things change this year," Kapfidze said.
