Investors Going into Debt to Buy Real Estate

The amount of home equity extracted by U.S. property owners surged to $705 billion in 2004 from $266 billion in 1999, with most of the money put toward buying new residences, repaying credit-card debt, and funding home-improvement projects, Economy.com reports.

And more homeowners are using the cash to purchase investment properties--2.2 million in 2004 compared to 1 million in 1994, says SRI Consulting Business Intelligence.

Experts say investors are betting that residential prices to continue their uphill climb and that demand from baby boomers and immigrants will bolster the market, but some buyers are running into difficulty unloading their properties and have posted losses in some cases.

"You should think pretty hard about whether you want to increase your exposure to real estate at a time when it is trading at historically high valuations," says Jan Hatzius, a Goldman Sachs economist.