g, your comment about a record rate of refi principal reduction interested me since I had only seen statistics regarding those taking out at least 5% more. I see that in Q42002, those reducing their mortgages by at least $1 totalled 23% at Freddie Mac. However, in the more recent Q12003, that number dropped to just 12%. Note that it takes a paydown of just one penny to qualify for that statistic; the 5% increase statistic, on the other hand, has a threshold of perhaps $5000. By examining the other information in their press release, you can see how this has obfuscated reality.
A more relevant statistic to me is the ratio of the principal of the new mortgages to the old mortgage balances. This number is perhaps at an all-time high now (at least back through 1997). This ratio has steadily risen from around 0.95 when the bubble burst to 1.24 now. Also, take a look at the mean age of refinanced homes -- when the bubble burst, this was 6.4 years; in the latest quarter it was 1.9 years.
This tells me that not only is there an acceleration in the turnover of mortgages, but that the quantity of money extracted per refinance is accelerating as well. When you combine that with the sheer volume of refinanced mortgages, which I think peaked in Q4 perhaps, it's easy to see how the total dollar volume extracted via refis has so greatly contributed to what I called the bridge/binge.
The game will apparently end only when either or both of two things occurs:
1) refi volumes decrease because interest rates go flat or increase;
2) housing prices decline, which causes that 1.24 new/old mortgage balance figure to drop
The Feds keep trying to pound down rates to keep #1 from taking hold, although if #2 occurs independently, and it might, it will also kill the game. The "rules" keep relaxing to draw more people into the fold.
And then there's the 2nd mortgage arena -- I've gotten offers for a 2nd mortgage to take out up to 150% against value. How many people are playing that game to make ends meet?
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