Wednesday, December 12, 2007

Q3 Mortgage Equity Withdrawal: $133 Billion

by Calculated Risk on 12/12/2007 07:55:00 PM

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q3 2007, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.

Kennedy Greenspan Mortgage Equity Withdrawal Click on graph for larger image.
For Q3 2007, Dr. Kennedy has calculated Net Equity Extraction as $133.0 billion, or 5.2% of Disposable Personal Income (DPI). Note that net equity extraction for Q2 2007 has been revised upwards to $159.2 billion.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income. MEW was still strong in Q3 2007, even with tighter lending standards.

As homeowner equity declines sharply in the coming quarters - household real estate equity declined $128 Billion in Q3 - combined with tighter lending standards, equity extraction should decline significantly and impact consumer spending.