Study: Mortgage Refinancing Fueling Growth
Saturday December 21, 11:33 am ET
By Dan Wilchins
NEW YORK (Reuters) - A record wave of mortgage refinancing since 2000 has put money in consumers' pockets and fueled one-fifth of all U.S. economic growth since 2000, a report released this week said.
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The biggest jolts have been to the Northeast and West Coast, where the refinancing boom has driven almost one-third of growth.
"The mortgage refinancing boom has provided a significant boost to a struggling economy over the past two years," Mark Zandi, economist at Economy.com and author of the report, said Tuesday.
Without the refinancing boom, last year's recession would have been much more severe, according to the report.
The lowest interest rates in a generation have spurred consumers to refinance $2.5 trillion of mortgage debt since 2000. Rising home prices have also fueled the trend, particularly in the Northeast and West.
Refinancing has spurred consumer spending by allowing Americans to pull equity out of their homes and cut borrowing costs, according to the report.
But other analysts said the wave may soon ebb.
"A lot of the refinancing boom should dry up next year," said Richard DeKaser, chief economist at National City Corp. in Cleveland.
The pool of consumers who have not refinanced is shrinking, as is the amount of home equity left to be tapped, said Joseph Abate, senior economist at Lehman Brothers in New York.
The report said the benefits of refinancing should linger for some time, as borrowers enjoying lower rates will have more money to spend for as long as they have their loans.
And some consumers who pulled equity out of their homes still have to spend that money.
CASHING OUT
So far, the main goad to the economy from refinancing has been consumers pulling equity out of their homes by borrowing more than their original mortgage balances, the report said.
Consumers will raise an estimated $170 billion this year via that "cash-out refinancing," the report said. Well over half of that will be spent directly, and close to a third will be used to pay down other debt, it said.
Longer term, refinancing helps the economy by cutting consumers' borrowing costs and insulating them against rising rates, the report said.
But mortgage lending is expected to fall 27 percent in 2003, largely because of a decline in refinancing, according to a report in October from the Mortgage Bankers Association of America.
As long as business spending picks up next year, slowing refinancing growth will not be a problem for the overall economy, Abate added.
The report was commissioned by the Homeownership Alliance, a housing trade group.
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