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Adjustable Rate
Mortgages increase to almost 40% of all mortgages
If not for ARMs, mortgage activity
would probably be down quite a bit. If that were true, then some
air might have already squeaked out of the bubble. Instead, ARMs
are driving home prices higher and bringing considerable risk
into the real estate market.
30-year fixed mortgage rates are already very low by historical
standards, which has enabled many to finance larger loans. Now,
that is not enough as consumers resort to ARMs to finance even
larger loans. In California, this has pushed home prices to
seemingly unrealistic and unsustainable prices.
Hopefully, this is a last gulp, rather than a new trend in
increased speculation.
Over the next few years, ARMs will begin to convert into
adjustable rates in large numbers. Until that happens, ARMS
won't pop the bubble. If; however, defaulted loans increase as
ARMs convert and rates rise, a loud explosion is almost certain
to follow.
Of course, maybe the fundamentals really have changed.
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