by Calculated Risk on 12/19/2008 10:55:00 AM

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q3 2008, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.

Click on graph for larger image in new window.

For Q3 2008, Dr. Kennedy has calculated Net Equity Extraction as minus $64.1 billion, or negative 2.4% of Disposable Personal Income (DPI).

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income.

Dr. Kennedy provides several other measures of equity extraction. The second graph shows what Dr. Kennedy calls "active MEW" (Mortgage Equity Withdrawal). This is defined as "Gross cash out" plus the change in the balance of "Home equity loans".

This measure is also slightly negative.

The Fed's Flow of Funds report shows the amount of mortgages outstanding is declining, and this is partially because of debt cancellation per foreclosure sales, and partially due to homeowners paying down their mortgages (as opposed to borrowing more). Note: most homeowners pay down their principal a little each month (unless they have an IO or Neg AM loan), so with no new borrowing, equity extraction would always be negative.

But this suggests that the Home ATM is closed, and MEW is no longer supporting consumption.