If I understand you, PerryChase, you are saying that because of lower interest rates the 2nd wave of ARMs will have more options for re-financing (and maybe a better market to sell into)
That seems reasonable with the caveat that lower interest rates don’t do much for the upside-down homedebtor
Correct me if I’m wrong here – the ARMs resetting in 2010/2011 are mostly 5 yr fix / 25 yr float and they originated in 2005/2006 ? some of them must be 7 and 10 year fixed ?
Looking at the chart I see that a significant portion of the ARMs resetting in 2010/2011 are Option ARMs – these loans are potentially neg-am so by 2010/2011 they could be ridiculously upside-down (depending on where market prices are)
My scenario for ARMageddon in 2010/2011 is based on two assumptions:
1. these ARMs originated in 2005/2006 (ie, peak prices and the peak of 100% financed, liar loans, etc)
2. at reset time most of these mortgages will be underwater (ie, the overall trend in real estate prices remains down between now and then)
I like this idea of a final washout in prices because it goes along with what I understand about financial markets in general – ie, moves tend to finish on high volume – this may not be applicable to the real estate market since the ‘bottom’ is likely to last for several years (ie, basically flat for 2-3 yrs) while the overhang of inventory is worked off
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As I write this, I am dismayed to remember having read today that one of the northeastern states is about to ban all current and upcoming foreclosures – because of actions like this it is hard to say what will really happen to the real estate market in coming years – perhaps someday we will have free markets …
