Suppose I have an ARM at 5.5% that resets in late 2007. ARMs are tied to short-term rates. Suppose that the index to which my ARM is tied drops to 3% and the margin is 2%. My ARM payment just went DOWN to 5% from 5.5%.

If re-setting ARMS higher causes negative pressure on real estate and the economy, won’t re-setting rates lower cause positive pressure on real estate and the economy ?

Even if the ARMS don’t reset to lower than the current rate, the fact that if rates reset to 5-6% versus 7.5-8% makes a huge difference in the impact on the borrower, their free-cash flow, and the economy.

Yes, the interest rate does have an impact. Lower rates will dampen the fall, higher rates will hasten the fall.

If you believe that ARM resets to higher rates will negatively impact real estate and economy, then why is the converse not true ? Simple logic.