Market HELOCs at local level, not broadly, to be successful

• What's at Stake: Lenders competing for the same borrowers risk wasting marketing budgets on broad campaigns.
• Supporting Data: 242,152 renovation permits added to a property record database. 

The dire business outlook coming out of the recent Mortgage Bankers Association annual convention reinforces the growing marketing trend towards home equity products.

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The group's economists are now predicting mortgage rates to remain above 7% over the next year. While the 10-year Treasury has backed down from 20-plus year highs in recent days, it is still above 5%.

Much discussion has been given to the "lock-in" effect, where homeowners with extremely low mortgage rates are reluctant to list their homes for sale to either upsize or downsize.

Home sales activity has slowed as a result, with lenders now having to focus on other revenue streams.

In order to provide originators a signal with where to market home equity lines of credit, data analytics company Kukun has created the Renovation-HELOC Index to show where demand is forming based on permit data it has.

This information provides borrower intent on doing renovation work on their homes a year ahead of other means, such as in Home Mortgage Disclosure Act filings. Furthermore, it is hyper-local, because different neighborhoods in the same area don't necessarily react the same, said Raf Howery, CEO and founder of Kukun.

Zeroing in on where the demand comes from

"Every lender already has HMDA — the map of last year's closed loans," he said. "This is the map of next quarter's applications, and the permit is the earliest place it shows up."

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Besides the permitting data, Kukun also has a property condition score, PICO, which looks at the age as well as what work has been done over the years.

"It's quite competitive right now; lenders are going to compete for the same people, so the more targeted you are, the more money you're saving on your marketing," Howery said. 'You have a higher likelihood of succeeding."

In validating the methodology on the HELOC score, "the more we dug deeper into that, the more we recognized that there are different trends from where people are thinking," Howery said. "So the idea is that we are going to tell the world where the demand is forming early on."

So it is not a surprise the largest demand for these loans by units is coming from California, Texas and Florida, the three most populous states. "But actually, as you start to dig deeper, you'll start to find that where our index gives it a score as to how likely a homeowner in a market, whether that's a ZIP code, a county, or a state, is likely to pull a HELOC," he continued.

Kukun found that most of the activity is not across a state or even the county, but in a handful of ZIP codes. "So instead of spreading your effort on trying to hit an entire county or entire state, you know where to go after," Howery said.

How the index works

The index is set to a market average of 100 based on this quarter's data. So 200 is an area where home equity demand is growing twice as fast, while 50 is half of the pace.

It is calculated using renovation permits per 1,000 homes, weighted by the value and divided by the parent market's average. Kukun noted this is a rate and so a ZIP with 2,000 homes can outscore one with 20,000.

The index report cites data from Intercontinental Exchange's June Mortgage Monitor, which found first quarter home equity withdrawals were at their highest since 2021.

However, the Harvard Joint Center for Housing Studies Lending Indicator of Remodeling Activity for the second quarter released in July expects just 0.5% annual growth in spending through the same period in 2027. This was down from 0.7% in the first quarter and 2.1% for both the third and fourth quarters of 2025.

The data comes from 242,152 renovation permits added to the company's database and joined to the property record.

A renovation for purposes of the index is when the owner makes additions; performs kitchen, bath, whole-house, general and basement remodels; or constructs accessory dwelling units. Those permits for a generic "general remodel" with no specific category and no scope-of-work description were excluded from use in the index.

Finding: a high priced house often needs lower renovation spend

Kukun also found that just because a home is expensive, it doesn't necessarily mean the remodel project is going to be large.

"Actually, we found the opposite," Howery said. People who own homes in pricier markets are doing smaller projects.

He gave the example of high-end Palm Beach County in Florida where the size of the project is smaller than for Mecklenburg County, where Charlotte is located, in North Carolina. The median price is lower, but the renovation projects are larger.

In Charlotte, the owners did whole house renovations or made additions. The Palm Beach homeowners predominantly worked on their bathrooms and/or kitchens.

The report shows how widely scores can vary in the same county. In Fairfax County, Virginia, a suburb of Washington, Great Falls' index value is 432, which the report notes is 4.3 times the county average. At the other end is Centreville, at 49.

Burke, Virginia had an 87 score; the report notes that home renovations are high using a plain count, but it drops below the average once equity is added to the calculation.

HELOCs are not one and done

For lenders, a takeaway is that the demand is continuous, he said. People at the start of a project may take a HELOC, finance through a personal loan or credit card, or use savings.

Yet seven or eight months into the project, they are likely to refinance, Howery said.

Possibly they initially got a personal loan, which typically has higher rates than a HELOC, because the approval process is faster and are now looking to reduce costs.

Or even if they did go the home equity route, they discover during the process, "their appetite starts to kind of get bigger, and they want to do more projects," he noted.