Refinancing Put $132 Billion Into Economy
Thursday December 19, 4:38 pm ET
By Mark Felsenthal
WASHINGTON (Reuters) - U.S. homeowners took advantage of falling interest rates and rising home values to extract $131.6 billion via mortgage refinancings in 2001 and early 2002, a study by Federal Reserve economists said on Thursday.
While consumers spent some of the money, they saved or invested more of it, according to a study published in the Federal Reserve Bulletin.
Homeowners spent an estimated $20.7 billion of the cash for personal items such as cars, vacations or medical services, the study said. They plowed an estimated $46.3 billion back into their homes for additions, new kitchens or items such as carpets or drapes, it said.
Refinancers used about $28.1 billion to pay down non-mortgage debt and $5.8 billion to pay off second mortgages, the Fed study said. Around $27.5 billion in refinancing proceeds was invested in financial assets, real estate or businesses, it added.
The interest rate for the popular 30-year fixed-rate mortgage has scraped lows not seen since the mid-1960s as the Federal Reserve has lowered short-term interest rates to spur the struggling U.S. economy. Interest rates for the long-term home loan have remained low because of uncertainty about the U.S. economic future and the possibility of war against Iraq.
Interest for the 30-year mortgage averaged 6.03 percent this week, mortgage financier Freddie Mac (NYSE:FRE - News) reported on Thursday, down from 7.14 percent at the beginning of the year.
Home sales are at record levels and housing starts are also vigorous. The strength of housing activity has helped keep the U.S. economic downturn relatively mild, economists have said.
A study commissioned by a housing industry trade association released this week said spending from refinancing has contributed one-fifth of U.S. economic growth since 2000.
Nearly 40 percent of homeowners who extracted equity in 2001 and the first half of 2002 each took out more than $25,000, the Fed said. The median amount was $18,500.
In 1999, the median amount taken out of a refinancing was $10,000, the Fed added.
Mortgage originations were expected to hit a record $2.52 trillion in 2002 on the strength of the refinancing boom, Freddie Mac's mortgage finance sibling, Fannie Mae (NYSE:FNM - News), said on Wednesday. Although refinancing has been projected to slow as the economy recovers, a trade industry gauge of refinancing rose last week. |
