The bubbleheads were convinced that once home appreciation leveled off, U.S. home refinancings would drop off which would kill consumer spending and lead to a death spiral for the economy. [All bubblehead scenarios include a death spiral somewhere.]

Didn’t happen.

There are several reasons why cash-outs have defied reports of their demise. Most importantly, the current rate of housing price appreciation is not what determines if a cash-out is feasible, but rather the cumulative gain since the existing loan was originated. The median age of Freddie Mac-owned loans that were refinanced last quarter was 3.3 years, and thus homeowners have benefited from robust price gains during 2004 and 2005. As a result, the median appreciation on refinanced properties was 24 percent, providing ample margin for taking out cash without running down home equity.