Friday, March 18, 2005

Equity Into Debt: Over $600 Billion In 2004

There is an calculation done by Goldman Sachs economist Jan Hatzius called mortgage equity withdrawal, or MEW. You can find the description at the Dallas Morning News link or a copy here.

MEW represents "the flow of new borrowing secured on existing homes..Ten years ago, MEW was $74 billion. Last year, it bulged to $640 billion." The piece titled "Formula puts price on greed", challenges Alan Greenspans assertion that a bubble in homes is unlikely due to a lack of liquidity. "Kathleen Bostjancic, economist at Merrill Lynch,..begs to differ on the liquidity issue."

3 Comments:

At 7:23 PM, Blogger Samson said...

This is not necessarily negative. Not everyone is buying cars and playing the market with the money.

 
At 9:56 AM, Blogger Travis said...

No, the rest of them are taking the money out to speculate on real estate.

 
At 11:34 AM, Blogger Ben Jones said...

From an economic perspective, I think it is decidedly negative. There are no returns available higher than the mortgage rate. Paying off credit cards puts that debt up against a homes equity. If a person needed health care, etc., I can see why one would do it. But these numbers are too big to be explained by personal emergencies. It is more likely the equity is being used for personal consumption and speculating in equities and RE.

 

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