When homeowners borrow money against the value of their homes (over and above what they may already owe) it is known as mortgage equity withdrawal (MEW).
Calculated Risk has attempted to quantify the "unprecedented" impact that MEW has has had on U.S. economic growth in recent years, using a method developed by former Federal Reserve chairman Alan Greenspan and economist James Kennedy.
Since 2001, by CR's calculations,
MEW has boosted GDP [Gross Domestic Product] by an average of 2.7% per year
On that basis, borrowing secured against the value of residential property has accounted for the bulk of economic growth over the past five years.
Not exactly a recipe for long-term prosperity.
There has also been a negative, and a rapidly declining, savings rate for about 6 years now.
People have bought stuff they can't afford such as; plasma tvs to houses, which have huge monthly costs- acting like alligators, which are then foreclosed and/or sold for a loss. Not to forget the stringent new bankruptcy laws.
Posted by: Yaser Anwar | December 30, 2006 at 02:49 PM