While consumer confidence has dropped lately, suggesting that the single positive demand factor in the US economy is tanking at last, there is a very powerful force arguing in the opposite direction -- mortgage refinancings are way up. With interest rates down, mortgage holders can cut their monthly payments significantly, and even walk away from the deal with extra money, so called "cashing out." This all means that the summer and fall may see a rebound in consumer confidence and spending.
According to the Mortgage Bankers' Association, the refinancing applications for last week represent the biggest number since 1990 -- jumping 35% in a single week. The only question is whether this set of applications are from unqualified borrowers, and the answer appears to be "no," that the same rate of approvals will go through as have in the past.
For the immediate term, those people who are cashing out will have money for new cars, vacations, college fees and other bigger ticket items. Longer term, there will be more money in their pockets because their mortgage payments will drop.
The only problem is for those who have not opted for a fixed-rate mortgage. A floating rate mortgage can go back up, and for those people, the risk of an interest rate squeeze years down the road cannot be discounted.