(Adds background, economist comment)
NEW YORK, Feb 8 (Reuters) - The amount of money extracted from home equity through mortgage refinancings plunged more than 50 percent last quarter to a three-and-a-half year low, Freddie Mac said on Friday, spelling trouble for the economy.
So-called cash-out refinancings totaled $37.8 billion in the fourth quarter of 2007, down from $77 billion in the year-ago period. Last quarter’s total was down 35 percent from the third quarter’s $58.3 billion, the government-chartered company said in a statement.
“This is real evidence of the upset in the mortgage credit markets as well as the impact of the decline in home values that occurred late in the year,” Amy Crews Cutts, Freddie Mac’s deputy chief economist, said in the statement.
Cash-out refinancing has been an important part of consumer spending growth in recent years, economists said. The decline of home prices last year and projections for more depreciation in 2008 will reduce available equity, reducing spending in an economy that may be nearing recession.
The impact of fewer cash-out refinancings last quarter may be registering already.
Most U.S. department-store retailers posted softer January sales on Thursday as recession fears turned consumers away from malls. On Wednesday, Macy’s Inc. said it would combine some offices and fire 2,300 staff.
“Research conducted by Fed economists suggests that consumers are more sensitive to changes in their home equity than to changes in stock market wealth,” Freddie Mac’s Cutts said. Less home equity will likely have a dampening effect on spending, she added. (Reporting by Al Yoon; Editing by Dan Grebler)