It's on the House

"I've got a lot of money in it, so what the heck," he said. "I've pulled the money out, but at the end of the day, I'm still reinvesting the money."

Young Spenders

Roughly half of all refinancings in the past few years have included some cash-out. And while mortgage experts say that is going to taper off because of higher interest rates, the faucets aren't turning off completely.

Increasingly, homeowners are turning to home equity lines of credit to get cash out of their homes. And if there's one rule of thumb, it's that younger and newer homeowners are much less inhibited about it.

"Your twentysomethings, your thirtysomethings, they've got no problems with it," said Chassaing of Wachovia. "Because a lot of these first-time home buyers -- they won the lottery."

"Jackpot" is how Ileann Jimenez-Sepulveda describes it. Like Klein, she bought a house in Columbia Heights when the neighborhood was still known more for its crime and lack of amenities than for its gentrification. But the $300,000 house she and her husband bought four years ago was recently appraised at $850,000, and that equity has changed their lives.

They used their growing equity to buy another house three blocks away and renovate it to sell it. Then they bought a house in South America, and soon they'll close on a large single-family home in the upscale Crestwood neighborhood off 16th Street NW. In the meantime, Jimenez-Sepulveda, who had worked in the high-tech industry, quit her job to join her husband in the real estate business; he's a loan broker, she became an agent. Now they encourage their clients to use the equity in their homes to buy investment properties.

"It's very easy, it's very tangible for people to understand because they see their neighbors doing it -- taking the money out, buying something else, or investing in starting a restaurant," she said. "It's exciting to see people recognizing it and running with it."

Jimenez-Sepulveda dismisses the analogy she sometimes hears likening this kind of leveraged real estate investing to the frenzied investing in technology stocks of the late 1990s. She argues that real estate assets are bound to increase in value over the years, even if it's at a far slower rate than in the past few years. But economists and lenders worry about what happens when home prices stop escalating the way they have been.

"Certainly as things retreat, you'll have some households that find themselves with two sets of loans -- one on their equity line and one on their primary residence, as well as their new property investment -- and that could be a lot," said Lereah of the Realtors Association.

Then there are homeowners who feel all this value is almost like Monopoly money; they're just kind of surprised at what they're now able to buy. They're not trying to reinvest their home equity or even understand it. They just feel lucky.

"For me, it's like wizardry. It's like, 'Oh, we can do this? Oh, wow,' " said Noa Baum, a professional storyteller and performer who grew up in Israel. Baum said she still finds it hard to believe that she and her husband were able to buy two new cars outright because their Takoma Park home -- their first house -- has gone up so much in value since they bought it less than three years ago. She calls it "a very weird situation."

"The good out of it is the fact that I can refinance and get this car, but if I wanted to sell this house, I wouldn't be able to buy anything in my neighborhood," Baum said. "I feel like these rats that run on those round carousels -- they spend lots and lots of energy, but they're still in the same place."

In a speech last fall, Federal Reserve Chairman Alan Greenspan painted a relatively sanguine picture of all these cash-out transactions, saying they've "likely improved rather than worsened the financial condition of the average homeowner."

That may be, but it's still unclear what the long-term impact has been on our behavior as consumers, and our ability to plan for retirement. Some economists say they see some younger homeowners seeking immediate gratification -- they want to live well now, so why shouldn't they tap into their home equity?

The reason they shouldn't, of course, is that home-equity wealth is still a huge piece of the puzzle when it comes to the golden years.

"For the average family in the U.S., home-equity wealth accounts for about half of their net worth," said Frank Nothaft, chief economist for mortgage finance giant Freddie Mac. "That's why I do think it's important that families do that reality check and try not to borrow to the hilt every chance they get, because they're taking away from their own future."

Then again, to some people, tapping home-equity cash is all about the future. In a way, the real estate boom is giving younger homeowners a new breed of retirement plan.

Nick Koufos, an attorney for the Securities and Exchange Commission, is 36 and has three children. He recently did a cash-out refinance on his Silver Spring home to build a house in Pennsylvania -- to which he plans to retire someday.

"I think it's better to get it done sooner rather than later," he said. "I don't see how I could lose money."