Goldman-Sachs note excerpts

Here are some excerpts from Goldman-Sachs's March 14 market note, emphasis added:

The Fed's flow-of-funds tables show a further pickup in mortgage equity withdrawal (MEW) to a record $640 billion, or 7.4% of personal disposable income, in 2004.  Although cash-out refinancing was down somewhat, this was more than offset by a near-doubling of home equity borrowing as well as further strength in housing turnover.  We believe MEW has been one key reason for the strength of household spending.  As interest rates rise, we expect this boost to turn into a drag....

The table below breaks down our MEW estimate into three components:  (1) cash-out refinancing, as estimated by Freddie Mac, (2) home equity borrowing, as estimated in the Fed's flow-
of-funds tables, and (3) equity extracted in the housing turnover process, which we calculate as a residual.

Mortgage Equity Withdrawal
($, billions)
Year     Total   Cash-Out      Home Equity   Turnover-
  Refinancing    Borrowing   Related MEW
1993     $79        $39          $-8             $47
1994       88         29           13               46
1995       74         22           17               35
1996     113         34            31              47
1997     110         39            41              30
1998     175         72            29              73
1999     242         71            40             131
2000     229         60            90              79
2001     317        136           26             156
2002     452        171           65             217
2003     528        224          102             202
2004     640        181          196             262
Source: Federal Reserve Board.  Freddie Mac.  Our calculations.

... The downside risk is that the housing market is looking more and more like an outright bubble. House prices in the country as a whole are probably still at the upper end of the reasonable range....