With mortgage rates continuing to stay untenably high for most Americans, many are staying put. But that doesn’t mean homes don’t need improving and upkeep. And some homeowners figure that if they can’t move into a new home, they’ll make their old home “newer” — a new deck or perhaps a walk-in closet.  They should not have waited.

     Traditionally, a home equity loan or home equity line of credit would be the first tool to reach for. But even those are getting too expensive for homeowners. This leaves homeowners effectively trapped in aging homes with no easy way out, or way to improve them.  And even when homeowners are tapping into home equity loans — homeowners did originate nearly 20% more second mortgages or HELOCs in the second quarter of this year compared with the first quarter — they likely aren’t using the equity for improvements. Experts say they are using them to stay afloat.

     Untapped or expensive, Americans are sitting on a record amount of home equity.

“As rates keep rising, tapping into home equity will become more and more expensive for homeowners. This will generally hold back consumer spending, but it will hit big-ticket items, like home renovations, particularly hard,” said Tom Graff, chief investment officer of Facet, a financial planning and wealth management firm.

     This struggle is something built into the rate hikes, according to Graff.  “The Fed is hiking interest rates in an attempt to control inflation. One of the ways that is supposed to work is by pushing down consumer spending. So the fact that consumers will struggle to finance large purchases is by design,” he said.  But the Fed policy also comes with risks for a consumer-driven economy.

     “Consumer spending is already lagging way behind as a driver of GDP growth,” Graff said.  And he added there is little cushion in the economy, given the soft jobs market, wage growth that has been declining, high gas — as well as diesel — prices, and net negative immigration. The biggest economic driver right now is data centers.  “Spending on data centers is really driving GDP growth and holding the economy together. If that were to slow even mildly, the economy could easily fall into recession,” Graff added.