Are you feeling a little wealthier, a little more comfortable as a homeowner despite all the talk of recession and budget deficits?

You should. New Federal Reserve data indicate that the net equity holdings of American homeowners increased by a record-breaking 11.4 percent from the end of the third quarter of 2000 to the end of the third quarter of 2001.

Net home real estate equity is important in the American economy because it is a key contributor to consumer confidence and consumer spending. Net equity is what your stake in your house is worth on the market if you had to sell it today, net of your mortgage payoff and associated transfer expenses such as brokerage and closing costs.

If it's growing or at least stable, your economic outlook tends to be sunnier than if it's not. You're more likely to spend money and help keep the economy humming.

Net homeowner equity last year increased by $681 billion and now exceeds $6.7 trillion -- an all-time record. That giant gain -- made possible by a combination of declining mortgage interest rates and rapidly-rising home values -- played a crucial role in moderating the national recession that began last spring.

Housing equity gains and lower rates stimulated the refinance boom of 2001, which in turn allowed millions of owners to convert what the Federal Reserve estimates was $80 billion into hard cash. Consumers spent an estimated $50 billion of that on everything from autos to kitchen appliances to Christmas presents -- and helped keep 350,000 fellow Americans in jobs that otherwise would have been lost to layoffs. The $50 billion was far in excess of the much-ballyhooed federal tax cut that sent most Americans rebate checks at the end of the summer.

The average refinancer last year not only lowered his or her interest rate, but pulled out $23,000 in cash, according to mortgage market giant Fannie Mae. Hundreds of thousands of refinancers pulled out much more than that --over $40,000 per refi, according to a study by mortgage insurer MGIC Investment Corp.

Whatever the cash-outs amounted to, they played a significant role in cushioning the American economy from a deeper recession, says Fed Chairman Alan Greenspan. In testimony to Congress last week, Greenspan cited strong housing construction and sales -- along with autos -- as major forces pulling the national economy out of its nearly one-year downturn.

With 30-year mortgage rates projected in the 7 percent range for most of 2002, the year should shape up to another outstanding one for home sales and mortgage financing. Last week the Mortgage Bankers Association of America announced projections for 5.05 million home resales and 881,000 new home sales in 2002 -- one of the highest-volume years in history.

Demographic trends also favor hefty housing gains.

Fannie Mae economists project 13 to 15 million new households added to the population by the end of the decade -- a faster growth rate than even during the expansionary 1990s. Fannie Mae also predicts the homeownership rate could exceed 71 percent before the end of the decade, up from 68 percent today.

That, in turn, will require 16 million new houses to be built and will help stimulate resales of 64 million homes. Overall, according to Fannie, consumers will double their investments in housing over the course of the decade.

The bottom line for you here? Sounds like a good time to either enter, expand your role in, or beef up your investment in home sales, home building, brokering or financing.

For more articles by Ken Harney, please press here.

Published: January 28, 2002

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.