Cash-Out Refinancings Will Be Higher Than Ever

U.S. homeowners are expected to draw $257 billion of wealth out of their homes this year, according to Freddie Mac.
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That’s a $13 billion increase from the refinancing cash-out boom in 2005, when interest rates were lower.

"I would have thought the home-equity extractions would have been much weaker now," says Frank Nothaft, chief economist for the mortgage finance giant.

Economists say most of the money is going right back into the domestic economy and characterize it as the housing sector’s last gift to the country’s economy.

Freddie Mac expects home owners to extract $152 billion out of their homes in 2007 and $108 billion in 2008. Those numbers are much higher than a decade ago. In 1996, refinancing cash-outs were $17 billion.

Part of the increase is due to a changing view of home mortgages, says Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "One of the big changes is that people look at their home as a financial asset," he said. "In another generation, the notion was 'Burn the mortgage.' That phrase is not in fashion anymore."