The Mortgage-Refinancing Boom and the Consumer Confidence Game

We like to think of the ups and downs of the economy working in a synchronous way, the peaks and troughs clearly defined. But of course that isn't how it works at all.

Instead, it's much more of a jumble. Ohio may be skirting recession while Wisconsin is growing much too fast. Wheat is up, pork bellies are down, specialty steel makers are hiring, iron mines are cutting back. And this is important to remember during this time when the Federal Reserve is cutting interest rates. There's an old saying about how rate cuts work with a lag, and that's true if you're talking about the economy at large. But there are areas of the economy that respond right away.

Since the Fed's first easing in January there has been a boom in mortgage refinancing, with many homeowners taking advantage of lower rates to cut their monthly payments. The Mortgage Bankers Association's refinancing index has climbed more than threefold and is at its highest level since October 1998. The sharp rise in refinancing activity could lead to some areas of the economy recovering much more quickly than Wall Street expects.

Spending Money

...