It's certainly debatable that lower interest rates are helping consumers. From an old article by Stephen Roach:
"For example, in 2001, US Commerce Department data show that households received some $1,091 billion in interest income, well in excess of the $592 billion paid in interest expenses. In other words, while refis help in a lower interest rate climate, those dependent on interest income -- especially retirees -- are hurt. "
Also, I've read figure regarding the volume of money pulled out at refi time, and I recall it was in the neighborhood of $1.2 trillion in 2001 and $480 million in 2002. I'll root around for a source. I'm not sure that for 2001 esp. if people actually had lower payments or simply kept the same payment with the extra cash. In either case, those consumers had a big boost in spending, and for some, it was a one-time deal.
But Roach's numbers illustrate, without the cash-outs, it would likely have been a net deficit. So when the cash-out spigot closes, that source will dry up (and has dropped significantly at this point).
edit: Here's something for 2002:
(Reflation Watch) April 2 – American Banker (Michael Williams, president of Fannie Mae’s eBusiness division): “Last year, close to 10 million homeowners refinanced their mortgages. They cashed out almost $200 billion of their accumulated home equity, far exceeding any previous record from prudentbear.com |
