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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
Bank Borrowing and Mortgage Interest Rates
Rates for both banks and homeowners have been low in recent years.
IN PERCENT
20%
15
10
30-year
conventional
5
mortgage rate
0 Effective
federal funds
1975 1980 1985 1990 1995 2000 2005 2010 rate
SOURCE: Federal Reserve Bank of St. Louis, Federal Reserve Economic Database
Figure .
Homeownership increased steadily, peaking at . of households in . Be-
cause so many families were benefiting from higher home values, household wealth
rose to nearly six times income, up from five times a few years earlier. The top of
households by net worth, of whom owned their homes, saw the value of their
primary residences rise between and from , to , (adjusted
for inflation), an increase of more than ,. Median net worth for all households
in the top , after accounting for other housing value and assets, as well as all lia-
bilities, was . million in . Homeownership rates for the bottom of house-
holds ticked up from to between and ; the median value of their
primary residences rose from , to ,, an increase of more than ,.
Median net worth for households in the bottom was , in .
Historically, every , increase in housing wealth boosted consumer spending
by an estimated a year. But economists debated whether the wealth increases
would affect spending more than in past years, because so many homeowners at so
many levels of wealth saw increases and because it was easier and cheaper to tap
home equity.
Higher home prices and low mortgage rates brought a wave of refinancing to the
prime mortgage market. In alone, lenders refinanced over million mort-
gages, more than one in four—an unprecedented level. Many homeowners took out
cash while cutting their interest rates. From through , cash-out refinanc-
