PLEASE FOLLOW @ https://twitter.com/MrMarkHanson . I put out much more regular detail and respond faster on a variety of housing & related subject matter than through the blog.
BOTTOM LINE: In Q3’16, “CASH-OUT” refi capital flows were back at a 7-year high of $26B, providing a swift consumer-spend and employment tailwind. But, as the “mortgage capital conveyor belt” grinds to a halt on the rate surge, it takes billions per month in ready, consumer-spend capital, liquidity, salaries, and corp earnings with it.
1) “CASH-OUT” refi’s are an important input to total consumer spend, providing homeowners, the top spending demo, with cheap liquidity for purchases of all kinds. Unlike “rate/term refi’s”, which lower the monthly payment providing homeowners more to spend each month, “cash-outs” can provide a lump sum to spend all at once.
2) Cash-out refi capital is sometimes targeted for home improvement, or college. Some spend it on wine, women, and the rest foolishly. But, whatever “stuff” cash-out refi capital buys, it’s usually spent in short order.
3) For the past THREE YEARS, cash-outs have increased each quarter to a 7-year high of $26B in Q3’16, providing a solid, constant tail-wind to consumer spend, employment, income, and commissions.
4) On the rate-surge, cash-out volume will crash just like it did on the surges of ‘09’ (-65%), ’10 (-50%), and ’13 (-45%).
5) When the “mortgage capital conveyor belt” shuts down, it’s actually a double-headwind due to the jobs that go with it. Remember, over 100 individuals work on each mortgage loan from pre-application to post-closing.
BOTTOM LINE: This time around will be no different. Cash-out refi’s will plunge at least 65% by Q2’17 taking BILLIONS per quarter in consumer-spend fire-power from the economy along with it. Additionally, the plunge in rate/term refi’s will rob millions of homeowners of monthly savings. Further, fee income to banks, mortgage co’s, and ancillary mortgage/housing support companies and sector salaries / commissions will plunge in kind.