Consumers Are Cutting Off Their ARMs
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The smart ones are at least. With interest rate parity between conventional fixed rate mortgages to adjustable rate mortgages, only the most desperate and clueless are taking out ARMs these days. The article in todays Baltimore Sun discusses the trend of ARMs taking a smaller part of the marketplace and how it is significant.
But it is only common sense. If you can get locked 30 year money for the same as 5 year adjustable money, you go with fixed money. It is something most if not all can understand. But 2 years ago when there was a 3 point difference between short term and long term money, even the smart folks went with the ARMs. Why not arbitrage the difference and hope you can get long term money when the rates start to go up.
So look into your crystal ball 3 years from now when the cycles change and there is a discrepancy between short term and long term money. And then these same papers will write glowing articles on the rise of the ARMs.
After all, why bother with an ARM at 5.8 percent - the average contract rate at the end of December, according to the Mortgage Bankers Association of America - when you could get a 15-year fixed-rate loan at 5.9 percent, or 30-year fixed-rate mortgage at 6.2 percent, all with roughly the same origination fees?
The latest national statistical survey bears this out: New adjustables dropped to a 25 percent share of the total market late last year, according to mortgage investor Freddie Mac’s annual ARM survey - down from a 33 percent share as recently as 2004.
Adjustables, which were introduced in the United States in the early 1980s, once ruled the home-loan roost. In 1984 they accounted for nearly 2 of every 3 new mortgages. Of course, those were the bad, bad old days of hyperinflation, when fixed-rate loans went for 15 percent and up, and one-year ARMs in the low double-digits looked like a relative bargain. via the baltimoresun.com.
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Comment by Dr. Housing Bubble on 13 January 2007:
Considering that in 2005 and 2006 25% of loan originations were in the sub-prime market I think this is good news. Too bad many of these recent buyers are barely able afford their home with their suicide loans. Most of these rates have 2 year teaser periods and will reset this year and next.
http://drhousingbubble.blogspot.com
Pingback by Interesting Stats On Brevard County, Florida Home Sales | The Successful Landlord Blog on 9 June 2008:
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