Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.

Many homeowners are in and out of the money as residential property values ​​soar and cash flow refinancing ball. Home values ​​rose 6.95% in September, the fastest rate since May 2014, according to the latest S&P CoreLogic Case-Shiller Home Price Index.

Largely due to tight housing supply and increased demand driven by low mortgage rates, some 16.7 million residential properties were considered equity-rich in the third quarter of 2020, or about one in four homes, according to ATTOM Data Solutions, a real estate data company. Homeowners that fit this definition own 50% or more of the equity in their properties.

Low rates don’t just light a match under homebuyers. Homeowners who want to save money line up for refinance while rates hit the lowest. The average 30-year fixed-rate mortgage fell to 2.71% this week, the lowest rate on record, according to Freddie Mac. Cash-out refinancing has also exploded, as borrowers want to leverage their equity without selling their homes.

“In addition to reducing payments, many homeowners are taking the opportunity to extract equity through cash refinancing,” says Len Kiefer, deputy chief economist at Freddie Mac. “In the third quarter of 2020, US homeowners collected $ 39 billion in equity, the highest level since the fourth quarter of 2007.”

Home improvement projects are on the rise

Remodeling activity has been steadily declining since the first quarter of 2019, according to the latest Remodeling Activity Leading Indicator (LIRA) report from the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies. But that may be about to change.

When the coronavirus pandemic hit the United States in March, home improvement projects were hit hard, with an annual growth rate of 2.1%, up from 3.3% in the previous quarter. Now Harvard researchers predict that annual growth in renovation and repair spending will reach 4.1% by the first quarter of 2021, which would mean a jump in spending from the current $ 332 billion to $ 337 billion. by the end of 2021.

“The remodeling market is rebounding from the initial shocks caused by the pandemic as homeowners continue to spend a lot of time in their homes and adapt it for work, school and play,” said Chris Herbert, CEO of Joint Center for Housing. Studies. “The strong increase in DIY and small projects activity is boosting the home improvement market, but it remains to be seen whether the strong sales market this summer will translate into larger improvements that lead to even stronger growth over the course of the year. for the next few quarters. “

Hardware stores, garden centers and building material suppliers saw a 13.2% year-over-year increase in sales, the second largest increase in all sales categories, according to a report from the Bureau of October US Census.

This increase in renovation activity is also reflected in an increase in the volumes of search for contractors, DIY services, home repairs and other topics related to home renovation. About 70% of home projects start with Google searches, says Max Anderson, chief economist for Porch.com, an online marketplace that combines homeowners and contractors.

When the pandemic hit, research volumes on these topics fell by around 40% overall. Repair-focused services, such as plumbers, fell only about 10%, but carry-over projects, like kitchen renovations, plunged 70%. But in June, search volumes were above normal levels, increasing about 40% year-on-year from June to July.

“Usually with the black swan events normal activities can be shifted, but on a yearly basis things don’t change that much. Beyond this shift in home improvement search volume, we’ve also seen a sustained 10-15% increase overall, which is real growth, ”said Anderson.

Some borrowers are tapping into equity to create their dream home

As homeowners spend more time in their homes, there is an increased demand for space and comfort. Classrooms and home offices are on the rise, as is the desire for more usable outdoor space. Rather than selling their home and heading into a heated market looking for a bigger and better place, some homeowners are remodeling their existing home.

In November, cash-out refinances were up 58% from six months earlier at Better, an online mortgage company. This could mean that even more homeowners are considering home improvements and larger investments, says Zoey Cigar-Hodge, mortgage expert at Better.

“The owners finance projects with refi cash-out funds. Due to the pandemic everyone is at home and most people criticize everything their home is missing and dream about everything their home could be, ”Cigar-Hodge said. “They are now looking to take advantage of the low rate market and make their homes comfortable for year round use. “

The refinancing activity is not limited to conventional mortgages. VA refinance loans increased by 241% in 2020 compared to 2019. For some seasoned homeowners, this was an opportunity to lock in a lower rate and tap into their home equity to make improvements to their home or to pay off debts, both of which are most popular uses of cash refinance money. says Chris Birk, vice president of mortgage analysis and education director at Veterans United Home Loans.

Birk says deciding whether to sell and get a more suitable home rather than using equity to improve an existing home depends on the borrower’s goals, long-term plans, and unique circumstances.

“With tight inventories and home prices at record highs in many markets, this is yet another remarkable time to sell for homeowners who are ready for that next property,” says Birk. “Some veterans use their home equity to make improvements that can add value and increase resale value in the years to come. Others have decided to make improvements to the homes they plan to live in for the long term. “

Although average mortgage rates are well below 3%, refinance rates are often slightly higher, Birk says. Borrowers should keep in mind that the rate you qualify for is largely determined by the lender, the type of loan, and the borrower’s credit profile.

Borrowers should get loan estimates from multiple lenders and carefully compare rates, costs, and fees to make sure they’re getting the best deal possible.