Don't Blame Mortgage Refinancing For Spending Boom
July 18, 2000
Some economists have theorized that homeowners who refinanced their mortgages in 1998 and early 1999 took the extra funds and set off on a spending spree which threatened to overheat the economy. But Federal Reserve researchers are discounting that theory.
The researchers estimate that homeowners took $54.5 billion in cash from the value of their homes. But the borrowers spent little of it on consumer goods and services.
More than half the money was used to make home improvements and pay off credit-card debt.
- The Fed says $18.1 billion went to home improvements -- which the government categorizes as a "residential investment," rather than a consumption expenditure.
- Some $15.4 billion went to repay credit-card and other debt.
- Only 18 percent, or $9.6 billion of it went to purchase consumer goods and services.
- Just two percent made its way into the stock market, the researchers said in an article published yesterday in the Federal Reserve Bulletin.
The $9.6 billion spent on consumer items pales in comparison with the $5.85 trillion Americans spend on consumer goods and services.
Source: Joseph Rebello, "Fed Says Mortgage-Refinancing Boom Didn't Cause Consumer-Spending Binge," Wall Street Journal, July 18, 2000.
Browse more articles on Economic Issues