California Falling Out of Love with Adjustable Rate Mortgages

California real estate has exploded over the last 5 years causing a wealth effect to spread to other parts of the country like Las Vegas, Phoenix and now San Antonio.

Part of this dramatic increase in property prices may be tied to increasing use creative mortgage loans such as interest only mortgages, pay-option ARMS and hybrid ARMS.

Facts:

- 2002 only 2% of mortgages where interest only... in Feb 2005 it was 61%.

- Adjustable loans represented only 28.9% of the market in 2002 and jumped to as high as 73.7% in May of 2005.

This increase use in these types of loans increases the amount of a home someone can afford to purchase, which pushes up home prices... or is it just luck that the biggest jump in prices coincides with the dramatic increase of adjustable rate mortgages?

Now, Californians are falling out of love with these mortgages according the Dataquick press release.

What's interesting when you read this press release...

Peak usage during the prior real estate cycle was in September 1988 when ARMs accounted for 66.1 percent of all home purchase loans

What happened next... Southern California real estate prices dropped 20 or more and took 5 years to recover.

Will this cause home prices to start decreasing? Share your thoughts as to the impact of the decreased use of ARMS on the California real estate market.


*Data & Chart provided by: Dataquick