The Refi Party? It's So Over Oh, for the days of a Sub-Zero in every rate tick
By Penelope Wang

(MONEY Magazine) – Call it the refinancing Lollapalooza. As interest rates plunged over the past three years to near-historic lows, millions of Americans rushed to refinance their mortgages--and ended up flush with more than $350 billion in extra cash. Refi dollars helped pay for an unparalleled spending party during the recent downturn, as homeowners financed everything from SUVs to vacation trips to home improvements. Fixed-rate 30s have dropped to 5.1%? Hello, granite countertops!

But now the low-mortgage-rate nirvana seems to be over. After bottoming at 5% in June, the 30-year fixed rate has crept back up to 6%. That move up has been enough to significantly dampen refinancing demand. The total dollar amount of refis will fall to just $462 billion this year, compared with a whopping $2.2 trillion in 2003, according to Doug Duncan, chief economist of the Mortgage Bankers Association. Even more worrisome, mortgage rates are expected to continue their climb, reaching 7% by 2005. "At that point," predicts Mark Zandi, chief economist at, "refinancings will come to a screeching halt."

How will homeowners cope with the end of the refi rave? Forget that third SUV. Consumer-spending growth is expected to dip to 3% by 2005, down from 4% in the fourth quarter of 2003. On the other hand, a pickup in business investment should, in turn, boost income and job growth. That means the consumer-spending party may yet resume. Only this time we'll have to come up with the money the old-fashioned way: We'll have to earn it. --PENELOPE WANG