Mortgage Refinancing Accounts for 20 Percent Of Real Economic Growth Since 2001

December 19, 2002

WASHINGTON, DC—An unprecedented boom in mortgage refinancing that started in 2001 has helped keep the economy moving, igniting 20 percent of the real growth in the nation's gross domestic product, according to a new study commissioned by the Homeownership Alliance.

Written by Mark Zandi, chief economist and co-founder of, the new study is the first to analyze the impact of the post-2001 mortgage refinancing boom on national, regional and local economic growth. Over the past two years, fixed mortgage rates have fallen to a 40-year low of nearly 6 percent and rates on adjustable mortgages have fallen to a record low of just over 4 percent. As a result, millions of homeowners have refinanced their mortgages, providing borrowers and the economy with more than $274 billion in interest rate savings.

"Last year's recession would have been substantially more severe and this year's recovery stalled if not for the strength of these markets. Mortgage refinancing now accounts for an astounding 20 percent of real gross product growth. Since the refinancing boom began two years ago, close to $2.5 trillion in mortgage debt has been refinanced. That's nearly half of all mortgage debt outstanding," said Zandi

The study also estimates $1.24 trillion in mortgages will be refinanced this year, accounting for nearly 20 percent of all mortgage debt outstanding. This is in addition to the $1.2 trillion refinanced in 2001. The study analyzes how refinancing activity impacts the economy and quantifies its national and regional economic impact.

"While the stellar economic contribution of housing during this economic downturn has been well documented, the contribution of refinancing activity has not. This new study examines a crucial element of the housing industry that is having a profound impact on the economy," said Rick Davis, President of the Homeownership Alliance.

"The finding that mortgage refinancing is driving the economy—accounting for 20 percent of the growth of real gross product—is further proof housing is a vital national priority that creates value and builds wealth. 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," Davis said.

The refinancing boom has provided a much-needed boost across the country. Every region is benefiting, but some regions are receiving more impact from the refinancing boom. The most significant economic contribution from refinancing has been in the Northeast and on the West Coast.

In particular, over the past two years, the refinancing boom has generated more than $64 billion in cash in the Northeast and $63.3 billion in the Pacific region. Other regions getting a boost from refinancing are the South Atlantic with $49.4 billion, the South Central with $28.7 billion, the Midwest with $48.6 billion and the Mountain region with $17 billion. Metro areas that saw the largest cash infusions from the refinance boom include Boston, MA ($11.6 billion); Detroit, MI ($5.2 billion); Nassau-Suffolk, NJ ($5.5 billion); New York City, NY. ($7.8 billion); Washington, DC ($8 billion); Chicago, Ill. ($9.1 billion) and Los Angeles, CA. ($13.4 billion).

The housing and mortgage markets have been instrumental in supporting the broader economy, and refinancing has provided an instrumental element for the industry's success. The contributions of refinancing activity to the economy are numerous. For example refinancing allows homeowners to:

  • lower their debt payments,
  • raise cash to finance more spending,
  • restructure their liabilities by reducing higher–cost liabilities and
  • lock in historically low long-term interest rates.

Many homeowners have found their interest rate savings on their new refinanced mortgages are so substantial they are able to do all of these things.

According to Zandi, housing's contribution to the economy will continue in 2003. "Even if mortgage rates do rise in 2003, the economic benefits of the current refinancing activity will linger on for some time. The refinancing boom is largely responsible for allowing households to insulate themselves from the potential negative financial impact of rising interest rates," he said.

"Home sales and mortgage origination volumes have never been stronger and single-family homebuilding and house price gains are as strong as they have been in a quarter century," Zandi said.

Source: Homeownership Alliance

Contact ALTA at 202-296-3671 or [email protected].