From the AP via Yahoo Business:
Survey: Rising Rates Worry Homeowners
By Eileen Alt Powell
Homeowners with adjustable-rate mortgages worry about rising interest rates, but many believe they will be able to refinance their loans if necessary, according to a study released Monday.
An survey of homeowners conducted for Wells Fargo & Co., the San Francisco-based bank, found that about one in seven respondents had an adjustable-rate mortgage, or ARM.
With an ARM, the interest rate rises or falls, often in lockstep with an underlying security such as a Treasury bond.
The study found that nearly 80 percent of homeowners with ARMs said they were “somewhat” concerned, “very” concerned or “extremely” concerned about rate increases.
But more than half said they believed they could refinance their loans. And about 20 percent said they were prepared for rate adjustments and didn’t plan any changes.
…
Woo Ho said that one surprising finding was that younger homeowners — especially those born since 1964 — view their homes as a good investment as well as a place to live.Overall, 72 percent of those surveyed said that the equity in their home was their most important investment, she said.
“That’s a shift,” Woo Ho said. “A home is now considered a major part of homeowners’ financial portfolios.”
A little depressing but here is the situation as Per Paul Krugman.
Bursting Bubble Blues
By PAUL KRUGMAN
Here are the five stages of housing grief:
1. Housing bubble? What housing bubble? “A national severe price distortion [in housing] seems most unlikely in the United States.” (Alan Greenspan, October 2004)
2. “There’s a little froth in this market,” but “we don’t perceive that there is a national bubble.” (Alan Greenspan, May 2005)
3. Housing is slumping, but “despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.” (Richard Fisher, president of the Federal Reserve Bank of Dallas, August 2006)
4. Well, that was a lousy quarter, but “I feel good about the U.S. economy, I really do.” (Henry Paulson, the Treasury secretary, last Friday)
5. Insert expletive here.
We’ve now reached stage 4. Will we move on to stage 5?
Over the last few years, most good U.S. economic news has been the result of soaring home prices. Spending on new houses created jobs and poured cash into the economy. Consumers borrowed against the rising values of existing homes and went on a buying spree, spending more than they earned for the first time since the great depression.
Metro, can you email me the full text, I wanted to post that up this morning, but don’t have a login (NY Times Select?).
jb
What about the other 20%?
why are they not concerned?
SAS
I hate surveys like this because what a largely uninformed person believes doesn’t matter much in reality, and probably 80% of these people are largely uninformed, though not necessarily the same 80% who are worried.
Also, anyone who doesn’t consider the long-term value of an asset as costly as a home from an investment perspective is an idiot. That doesn’t mean it’s a good investment, but any time your going to tie up a sizable chunk of your income in anything, the value you get for your money is important.
I suppose it’s possible that 72% of people with ARMs right now believe their home purchase is a good investment, but based on the massive increase in the use of the loans over the last few years, I would be willing to bet that a hell of a lot of them are wrong.
“I hate surveys like this because what a largely uninformed person believes doesn’t matter much in reality, and probably 80% of these people are largely uninformed, though not necessarily the same 80% who are worried.”
Agreed, but so much of this bubble situation has to do with public perception. The faster perception changes, the faster this thing will unravel.
If (that’s a big IF) the interest rates remain around 6% for the next 10 years, will there be any real danger in having an ARM?