A story in Saturday's New York Times ("Good News, Bad News: Your Loan's Approved" by Eduardo Porter) highlights the growth of interest-only mortgages for home buyers. It appears that over 50% of new prime mortgages have been interest-only in the last two years, and subprime mortgages are up to nearly 25%. I believe most of these mortgages are also ARMs, which means that not only do the home "buyers" get hit when the mortgage changes over to paying principal in 5 or 10 years, but they also get hit when the fixe-rate term expires and the interest rate becomes adjustable.
Prices are set on the fringe. In other words, it's the small fraction of people who are actually selling an item that set the price for all owners of that type of item. So how, exactly, can anybody believe that real estate prices can not possibly go down? One simple recession and a lot of people are going to lose their houses.
Posted by Tom Nugent at August 30, 2005 10:05 AM