In
economics
Economics () is the social science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
, mortgage equity withdrawal (MEW) is the decision of consumers to borrow money against the real value of their houses. The real value is the current value of the property less any accumulated liabilities (mortgages, loans, etc.) Some authors also use ''equity extraction'' and include net payments received at time of house sale.
In this case the traditional usage of equity extraction is the purchase of a new house.
The rate of MEW has been linked to
Marginal propensity to consume
In economics, the marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending ( consumption) occurs with an increase in disposable income (income after taxes and ...
(MPC), as measured by
Personal Consumption Expenditure
The PCE price index (PePP), also referred to as the PCE deflator, PCE price deflator, or the Implicit Price Deflator for Personal Consumption Expenditures (IPD for PCE) by the Bureau of Economic Analysis (BEA) and as the Chain-type Price Inde ...
(PCE). In the United States, during the
dramatic rise in house prices MEW funded PCE 1.1 to 1.7% from 1991 to 2000, and almost 3% from 2000 to 2005
[Sources and Uses of Equity Extracted from Homes](_blank)
(pdf), Alan Greenspan and James Kennedy, Finance and Economics Discussion Series, 2007-20, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C. and was responsible for more than 75% of GDP growth from 2003 to 2006.
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While economists consider borrowing against home equity to be analogous to 'withdrawal' it is, in fact, simply collateralization of an asset. As an economic metric it is very useful to do so; however, this view is a balance sheet phenomenon and not actual conversion of home equity into cash. The sole means of withdrawal of home equity is the downsizing of the asset in a manner which does not result in establishing a lien against the entire asset. A lien puts the entire asset at risk; downsizing simply converts equity into cash, leaving the balance of the value of the asset intact.
See also
*Home equity
Home equity is the market value of a homeowner's unencumbered interest in their real property, that is, the difference between the home's fair market value and the outstanding balance of all liens on the property. The property's equity increase ...
*Home equity loan
A home equity loan is a type of loan in which the borrowers use the equity of their home as collateral. The loan amount is determined by the value of the property, and the value of the property is determined by an appraiser from the lending ins ...
* HELOC
*Reverse mortgage
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthl ...
References
Bibliography
*
Mortgage
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