Mortgage Equity Withdrawals, also referred to as Home Equity Extraction, measures the value that homeowners are pulling out of their homes via home equity loans. Homeowners with equity in their homes - IE, whose homes are worth more than they owe in mortgages - are sometimes able to get additional loans from the bank using their equity in the home as collateral. This reduces the homeowner's equity (or ownership in the property), but increases his or her available cash. From 2000-2006, the cash homeowners removed from their homes was an increasingly important component of GDP (see chart below right). However, as housing prices began to slow their ascent, MEWs dropped precipitously in late 2007 and early 2008.
Chart prepared by
Alan Greenspan and James Kennedy at the Federal Reserve in 2005 shows the dramatic increase in mortgage equity withdrawals from 2000 - 2005....
Economists track mortgage equity withdrawals because the cash homeowners extract from their homes was believed to be an important driver of consumer spending and consumer confidence from 2001 - 2008.
