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With mortgage interest rates starting to tick upwards slightly, more homeowners are joining the refinancing bandwagon. According to a study commissioned by the Homeownership Alliance, an unprecedented boom in mortgage refinancing has helped keep the economy moving, igniting 20 percent of the real growth in the nation's gross domestic product,
For instance, homeowners in San Francisco took advantage of historically low interest rates to refinance their loans in 2002. The study found mortgage refinancing contributed 109 percent — $3 billion — of the economic growth in the San Francisco area.
The study is the first to analyze the impact of the post-2001 mortgage refinancing boom on national, regional and local economic growth. Over the past two years, fixed mortgage rates have fallen to a 40-year low of nearly 6 percent and rates on adjustable mortgages have fallen to a record low of just over 4 percent. As a result, millions of homeowners have refinanced their mortgages, providing borrowers and the economy with more than $274 billion in interest rate savings.
"Last year's recession would have been substantially more severe and this year's recovery stalled if not for the strength of these markets. Mortgage refinancing now accounts for an astounding 20 percent of real gross product growth. Since the refinancing boom began two years ago, close to $2.5 trillion in mortgage debt has been refinanced. That's nearly half of all mortgage debt outstanding," said Mark Zandi, chief economist and co-founder of Economy.com.
The study analyzes how refinancing activity impacts the economy and quantifies its national and regional economic impact.
"While the stellar economic contribution of housing during this economic downturn has been well documented, the contribution of refinancing activity has not. This new study examines a crucial element of the housing industry that is having a profound impact on the economy," said Rick Davis, president of the Homeownership Alliance.
The housing and mortgage markets have been instrumental in supporting the broader economy, and refinancing has provided an instrumental element for the industry's success. The contributions of refinancing activity to the economy are numerous. For example refinancing allows homeowners to lower their debt payments, raise cash to finance more spending, restructure their liabilities by reducing highercost liabilities and lock in historically low long-term interest rates.
Many homeowners have found their interest rate savings on their new refinanced mortgages are so substantial they are able to do all of these things.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to jnewton@jnpr.com.
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