Monday, March 28, 2005

Adjustable Rate Blues

As interest rates have been ticking up, the analysts have started to calculate what that will mean to those with adjustable rate mortgages. From BankRate.com, "A one-year ARM for $200,000 that adjusts by 2 percentage points sees the monthly payment increase by approximately $230."

"How about those pervasively marketed Option ARMs that permit borrowers to choose which monthly payment they wish to make? A similar increase in rates would drive the interest-only payment on a $200,000 loan up by $333. The danger, of course, is that with such a loan the borrower could instead make the more-affordable minimum payments that actually push the balance higher."

Anyone following the market knows that in the really hot areas, $200,000 doesn't buy very much. We should expect to see headlines like, "Honey, I Shrank Our Standard Of Living."

6 Comments:

At 1:23 PM, Anonymous Anonymous said...

There was a TV report that David Rosenber from merrill lynch just called the housing bubble "scary". It compared consumer investment in housing to GDP and found it was very high.

I can't find any reference to it on the Internet.

 
At 1:51 PM, Blogger Ben Jones said...

I tried to find that story and couldn't. If anyone could post a link we would appreciate it!

 
At 5:39 PM, Anonymous Anonymous said...

Ben, just started reading your blog 3 days ago. It's a great site. For the article on David Rosenberg of Merrill Lynch, try this:

http://wallstreetbear.com/board/view.php?topic=29749&post=97723

 
At 6:37 PM, Blogger Ben Jones said...

1st anon. here is the quote:". In the United States, the ratio of household real estate holdings to GDP -- now 140 per cent -- is a record high. To some economists, Mr. Rosenberg among them, the figure is the kiss of death. In early 2000, the equity market valuation as a percentage of GDP also reached 140 per cent. As if on cue, popping sounds were heard soon afterward."

Thanks to 2nd anon for the link! Stay tuned, it should get interesting..Ben

 
At 7:32 PM, Blogger mspenelope said...

3/22/05

****We should expect to see headlines like, "Honey, I Shrank Our Standard Of Living." ****

Ah ...too late for that comment Ben!

"Honey I Shrunk the Net Worth"
3/7/2005

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=41091

"Honey, I Shrunk the Dollar"
2/24/05

http://service.spiegel.de/cache/international/0,1518,343449,00.html

 
At 10:48 PM, Anonymous Anonymous said...

# 32% of all mortgages are ARMS (Source : Mortgage Bankers Association)

# 9% of the mortgages in 2004 were subprime or made to people with poor credit. That's $517 billion in dollar value

# Zero down loans exceeded $90 billion last year.

# More than a third of all mortgage applications in Q1 2005 were for ARMs. ARMs could turn out to be dangerous for most consumers in a rising interest rate environment.

house bubble

 

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