A slower pace of home mortgage refinancing in the U.S. probably won't weaken consumer spending and hamper the expansion because household balance sheets are healthy, a study by the Federal Reserve Bank of New York has found.
Americans refinanced almost 12 million mortgages last year, about a quarter of all mortgages, compared with 8 million a year earlier, according to the study by Fed economists Margaret McConnell, Richard Peach and Alex Al-Haschimi.
Forecasters including Goldman, Sachs & Co. have predicted a retrenchment in consumer spending when interest rates rise and refinancing slows, the Fed said. The central bank's economists disagreed.
"The evidence is strong that the aggregate household balance sheet has not been impaired by the boom in home equity withdrawal and that the end of this boom need not lead to a significant slowdown in consumer spending," said the study, which was released last week.
"Higher interest rates and the return of refinancing activity to more normal levels are not likely to result in a sharp slowing in the growth of consumer spending," the study said.
It noted that the savings rate stayed "in positive territory" during the busiest period of home equity withdrawal.
"The rapid increase in mortgage debt stemming from the accelerated pace of home equity withdrawal is not leading to deterioration of household net worth," the study said. "While the refinancing boom will inevitably come to an end when interest rates rise, the increase in rates will most likely be the result of faster growth of employment, incomes and spending throughout the economy."