[quote=deadzone]FSD, in your case things might have worked out okay (up to now) but that is only because LIBOR is at a historic low. This just demonstrates how fragile the housing market is.
It also proves that the real reason behind the FED QE has been to minimize the foreclosure crisis due to the ARM loans resetting in 2010-2012 (as identified in the reset chart).
But we can debate all day long about the severity of the reset chart but one thing is certain, these resets are not going to help the housing recovery. Furthermore, if interest rates creep up in the next two years (at this point they are so low the only way they could move is up)it is going to exacerbate the problems and induce more foreclosures out of those resets.
So again, best case scenario (fed is successful in keeping rates at historic lows for the next two years, economy recovers, jobs recover, etc) RE prices will remain flat to slightly up. But worst case scenario things could get very, very ugly. Again, the prudent thing to do is wait until all of the ARMs resets are flushed out of the system because the potential down side is much greater than the upside.[/quote]
If interest rates rise conmsiderably, it likely means that there is some sort of recovery. The important factors on these resets will be 1) how long do rates stay this low; and 2) when rates do go back up will they be doing so in a growth environment; 3) how underwater are the loans when the rates go up.
It’s amazing what a few years of low interest rates will do to knock down the principal in a loan.
The net effect of the “second wave” of resets is that the impact will be spread over a number of years (e.g. half a decade or more), as opposed to the intial wave, in which resets at 7-8% triggered defaults and most went bad over about a 12-month period.
