The bubbleheads were convinced that once home appreciation leveled off, U.S. home refinancings would drop off which would kill consumer spending and lead to a death spiral for the economy. [All bubblehead scenarios include a death spiral somewhere.]
Didn’t happen.
There are several reasons why cash-outs have defied reports of their demise. Most importantly, the current rate of housing price appreciation is not what determines if a cash-out is feasible, but rather the cumulative gain since the existing loan was originated. The median age of Freddie Mac-owned loans that were refinanced last quarter was 3.3 years, and thus homeowners have benefited from robust price gains during 2004 and 2005. As a result, the median appreciation on refinanced properties was 24 percent, providing ample margin for taking out cash without running down home equity.
4 responses so far ↓
1 Brian McMorris // May 10, 2007 at 6:32 pm
I would say if you “take out cash”, then, in a flat to declining housing market, you definitely “run down equity” in the words of the author. I don’t get the argument, to be honest.
2 John L. Wake - Realtor // May 10, 2007 at 10:25 pm
Yes, certainly your equity must be less but with his magic formula it isn’t “run down” whatever that means.
I suppose his point is that their equity isn’t dangerously low, that these borrowers aren’t in danger of losing their homes.
3 Michael W. // May 11, 2007 at 8:17 am
I guess that is why April had the worst retail performance on record, and I have already heard the lame weather excuses… Which has been used for the last 6 months, I guess bad weather is a relatively new occurence.
Housing crashes are a slow motion train wreck of epic porportions. Ask the Japanese. BTW, the ASU center says Ahwatukee is down -15%, but then calls the market normal. I guess with these benchmarks, no wonder real estate is always a great investment at any price.
Just wait until the next recession comes. If there is one anytime in the next 3 years and historically there is a 99% chance of that occuring, housing prices will see a significant slump.
4 John L. Wake - Realtor // May 11, 2007 at 1:25 pm
If there is a recession and Arizona jobs take a hit, home prices will take a hit too.
I was very concerned that we would get a recession in 2006. Home prices could have come down fast. That would have some advantages for home buyers but it would have also been devastating for many thousands of Arizona families who bought near the top. So I don’t root for a price decline.
It’s been almost 2 years since the boom peaked.
It looks like we’ll have at least one more year without a recession.
If we can go 2 more years, through 2010, without a recession, we’re golden.
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