by Calculated Risk on 3/10/2008 10:00:00 PM

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q4 2007, 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.
For Q4 2007, Dr. Kennedy has calculated Net Equity Extraction as $76.3 billion, or 3.0% of Disposable Personal Income (DPI). Note that net equity extraction for Q3 2007 has been revised downwards to $119.3 billion.

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.

MEW was declining in Q4 2007, however, these numbers are not seasonally adjusted. MEW in Q4 2006 was $94.6 Billion, so MEW has only fallen 20% from Q4 2006.

As homeowner equity continues to decline sharply in the coming quarters, combined with tighter lending standards, equity extraction should decline significantly and impact consumer spending.