by Bill McBride on 6/09/2016 04:34:00 PM
Thursday, June 09, 2016
Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.
The following data is calculated from the Fed's Flow of Funds data (released today) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).
For Q1 2016, the Net Equity Extraction was a negative $30 billion, or a negative 0.9% of Disposable Personal Income (DPI) . MEW for Q2 and Q3 in 2015 was slightly positive - the first positive MEW since Q1 2008 - and MEW will probably be positive in Q2 and Q3 again this year too (there is a seasonal pattern for MEW).
Click on graph for larger image.
This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.
Note: This data is still heavily impacted by debt cancellation and foreclosures.
The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $17 billion in Q1.
The Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance.
With residential investment increasing, and a slower rate of debt cancellation, MEW will likely turn positive.
Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).
For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.