Refinancing Accounts for 20% of Economic Growth
Economic growth may seem anemic, but imagine how the economy would look without the refinancing boom that began in early 2001.
According to a study commissioned by the Homeownership Alliance, 20% of the real growth in the nation's gross domestic product since the beginning of 2001 can be traced back to refinancing activity.
The study, written by Economy.com co-founder Mark Zandi, analyzes the refinancing boom's impact on local, regional and national economic growth.
Over the past two years, fixed mortgage rates have fallen to a 40-year low of about 6%, allowing borrowers to refinance higher-rate loans and save $274 billion on interest payments.
Since the refi boom began in 2001, nearly $2.5 trillion of mortgages have been refinanced, accounting for nearly half of all home loan debt outstanding.
"Last year's recession would have been substantially more severe and this year's recovery stalled if not for the strength of these markets," Mr. Zandi said.
Rick Davis, president of the Homeownership Alliance, said that while the economic contribution of the housing industry has been well documented, the role that refinancing plays has not.
"Refinancing is a major component of housing's important contribution to the economy and positively impacts individual homeowners by providing a method for raising cash in difficult economic times," Mr. Davis said.
The study also looks at the impact of refinancing on the economies of specific metropolitan areas. Big winners include Los Angeles, which saw $13.4 billion infused into its metropolitan economy due to refinancing. Boston gained $11.6 billion, Chicago gained $9.1 billion, Washington, D.C., gained $8 billion and New York gained $7.8 billion.
Separately, the Mortgage Bankers Association of America estimates that mortgage industry employment has increased by 37% since the beginning of 2001, adding 110,000 jobs to the economy.
The MBA also estimates that in 2002 alone, mortgage refinancing generated between $60 billion and $75 billion of consumer spending for the economy.
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