January 05, 2004

SJ Mercury News: More home buyers choosing ARMs

The SJ Mercury news had an article over the holiday about the increasing use of adjustable rate mortgages (ARMs) in California.
In response to rising home prices and mortgage rates, an increasing portion of California home buyers are opting to finance their purchases with adjustable-rate mortgages, a real estate information company said Friday. Santa Clara County had the highest percentage of buyers who financed their homes with adjustable-rate mortgages, or ARMs, of any area in the survey: 68 percent. The survey by DataQuick Information Systems looked at home sales that were completed in November.
I take this as evidence of two things: (1) people are looking at mortgage payments, not house price when determining what to pay for a house; (2) the market has pushed buyers to the limit of what they can afford -- now that interest rates have levelled off, buyers are taking on increasing levels of risk to match still-rising house prices. It seems clear that the interest rates on these ARMs has nowhere to go but up; seems unlikely that buyers will be able to re-fi their way out of this later. I have a hard time seeing this as anything other than an act of desperation on the part of buyers. Posted by dapkus at January 5, 2004 11:22 AM | TrackBack