Real estate consumers have played a leading role in keeping the struggling economy from going completely bust.

Refinancing mortgages not only boosts households' bottom lines, it gives the economy a lift too. Home owners refinancing their mortgages in droves for the past two years are credited with 20 percent of the growth in the nation's gross domestic product (or GDP, a measure of the output of goods and services produced by labor and property in the U.S.), according to a new study.

Home buyers also help carry the economy, according to another recent study. California's new housing construction contributes $40 billion per year to the Golden State's not so golden, struggling economy. Home building is responsible for 359,000 jobs statewide and every dollar spent on new housing construction generates approximately $1.95 in total economic activity.

No one is suggesting you should refinance or buy a home to help prop up the economy. Both are personal decisions based on individual needs and goals. Home owners refinance for extra cash, lower rates, reduced monthly payments, loan term changes and other financial needs. Home buyers buy because they need a roof over their heads and see the home as a relatively low-risk, easily leveraged investment.

It is nice to know, however, that real estate consumer power helped keep the nation from what could have been a deeper recession. Likewise, the financial force that's pulling the nation out of the recession is led by real estate consumers.

"The Economic Contribution of the Refinancing Boom," research by West Chester, PA-based Economy.com, an international economic researcher, found that during the past two years, as mortgage interest rates dropped to historic lows, an estimated $2.5 trillion in mortgage debt was refinanced -- almost half of all outstanding mortgage debt.

Even without considering equity borrowing, refinancing alone amounts to one-fifth of the national economy's GDP growth of just over 1 percent per annum since late 2000, according to the report, commissioned by the Homeownership Alliance, a coalition of organizations supporting the nation's housing system.

Borrowers with large equity gains in the Northeast and West Coast provided the largest economic contribution.

The refinancing boom has generated more than $64 billion in cash in the Northeast and $63.3 billion in the Pacific region. The South Atlantic contributed $49.4 billion; South Central, $28.7 billion; the Midwest, $48.6 billion and the Mountain region, $17 billion.

Just build it

Likewise, "The Economic Benefits of Housing in California" extols the economic virtues of home building in California -- a beleaguered industry about to get a financial boost from the new "Homebuilder Right-To-Repair Law". Like similar laws in a growing number of states, it is designed to stem the tide against new home construction defect litigation. Hopefully, it will encourage much needed residential real estate construction and keep the price of homes from rising so fast that consumers are less able to help the economy during the next recession.

Only the combined wholesale/retail segment of the state's economy matches the economic power of California real estate, both contributing 13 percent of the state's total industry output -- twice as much as other sectors, according to the Sacramento Regional Research Institute, which authored the report released by the Job-Center Housing Coalition.

Published: December 30, 2002

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