ARM Threat Overstated, At Least in Near Term
Writing in the Business Week real estate blog Hot Property, Peter Coy calculates that only about 4% of homeowners will have their mortgages reset in 2006. He arrives at this number by crunching some data from the recently released Harvard 2006 Housing Study: Here’s the math: Only about two-thirds of homeowners carry a mortgage at…
Writing in the Business Week real estate blog Hot Property, Peter Coy calculates that only about 4% of homeowners will have their mortgages reset in 2006. He arrives at this number by crunching some data from the recently released Harvard 2006 Housing Study:
Here’s the math: Only about two-thirds of homeowners carry a mortgage at all. Of those, only about one-quarter have adjustable-rate mortgages. And of those with adjustable-rate mortgages, only about one-quarter are scheduled to reset their rates in 2006. That’s one-quarter of one-quarter of two-thirds, which Excel tells me is 4%.
In addition, Coy notes that only 3% of people have less than 5% equity in their homes and 87% have at least 20%.
Only 1 in 20 Rates to Rise [Hot Property]
His spin was that ARM resets won’t be significant factor impacting market and I agree. He’s not claiming market will go up or down just that the ARM is not a factor. If you read rest of the articles many claim market is cooling.
I trust a harvard study, what I don’t trust is “Business Week real estate blog Hot Property, Peter Coy” pulling out excel to do a trivial fraction, and then saying “don’t worry”. It is obvious he doesn’t understand the market.
Market prices are defined by a small fraction of sales per month. Pointing to small percentages of the ENTIRE market and saying they are insignificant is incredibly dumb.
I was the first anonymous, and not the other three. But I agree that the report is rosy – I have seen other reports not so rosy. I think Brownstoner’s post from the other day about market confusion is far more accurate than any report – things are in flux and can go either way. Simply because there may or may not be some ARMs resetting doesn’t mean that the market is fine and dandy. Harvard can report what they want – Wall St. seems to disagree. Who’s right? Only time will tell.
Anon 10:15:
Do you really believe that anyone is going to trust your anecdotal evidence over a full Harvard study?
you can play games with the maths to show anything: lets look at things this way: what percentage of brooklyn property is for sale at any one time? far less than 0.1%. In a year? maybe 1%?
But now we have a full 4% (national average) of home owners getting their ARM reset, and presumably, some of them become financially distressed.
Now, suddenly, the number of potentially distressed sales looks like a big market overhang, big enough to define prices in some areas, and move them down in the rest. And then the next year, if interest rates stay high or go higher: the ARM cycle repeats.
It seems that the Anonymous who posted the last four posts did not read the report.
This is the rosiest housing report I think I have ever seen. The report makes it look like there is practically no way that we will have a serious decline in housing prices.
“…Only about two-thirds” ??? That’s a nice chunk. And if the top of the cycle was 2005 you would expect the threat to play out about 2008.
Low affordability + high prices = exotic loans. Who has the numbers for historic Brooklyn/NYC?
I suspect the brooklyn condo market is flooded with arms. but that’s just a guess.
Also – is it accurate to assume that those ARM being reset will be going up necessarily? If you bought or refinanced several years ago with a 3yr or 5yr adjustable – what was your initial rate? And what will be reset at?