Tyler Durden
Worried about being priced out of the housing market once again? Concerned that longer-term fixed rates will rise? It seems the general public, guided by the always full of fiduciary duty – mortgage broker – has reverted to old habits and is charging back into Adjustable-Rate Mortgages. AsThe LA Times reports, ARMs, which all but vanished during the housing bust, are back – accounting for 11.2% of homes purchased in November (double that of the year before)! While not the Option Arms of yesteryear, it would appear people, pushing for lower monthly payments, remain completely oblivious to the word “adjustable” when they shift their risk to the shorter-end. Though, as the ‘experts’ continue to tell us, rising rates won’t affect housing negatively – not at all…
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It seems we never learn…
When Michael Shuken recently bought his family’s first home, a four-bedroom in Mar Vista, hisadjustable-rate mortgage helped them stay on the pricey Westside.
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For now, his interest-only loan costs him about 35% less per month than a 30-year fixed mortgage, he said. But he’ll have a much bigger monthly bill in 10 years, when the loan terms require him to start paying off principal at potentially high rates.
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“What is going to happen if I can’t restructure my loan and extend it? Are interest rates going to be 7%, 8%?” the 43-year-old commercial real estate broker said. “The home is big enough for me to grow into. The question is, will I be able to?”
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So, because they absolutely have to stay on the “pricey side” as opposed to move to what they can afford… it seems this attitude is becoming ubiquitous…
More homeowners in Southern California were willing to take that risk last year. In November, 11.2% of homes bought with loans carried adjustable-rate mortgages, or ARMs. That’s double the rate of the same month a year earlier, according to San Diego-based research firm DataQuick.
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“You saw a big swing in people taking adjustable versus fixed rates” when prices and rates shot up last year,
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Of course, it’s not about what house you can afford, it’s about what monthly nut you can cover…
Wow!
Talk about a disaster waiting to happen!
That is really sad.
People ought to know better by now.
I had just recently seen on local news that a 20% down was just becoming the norm…..again after years of irresponsible home sales.
Banks just will not sell at losses so condo and other homeowner associations eat the lost dues…..for years!
It was becoming a huge problem in CA.
Walk aways accounted for over 25% of some assocations’ shortfalls.
Oddly, here in Utah, where the minimum wage is LOWER, more people stick with their home purchases and see them through via refinancing, taking room mates, other creative things.