It seems obvious that a mid to lower income family, on a very tight budget, who got an ARM at the height of the frenzy and is barely able to make their $1100 mtg payment, would be in serious risk of default if the payment went up to $1500 or $1600. The family making $45K, with 3 kids, and limited potential for increasing their income – sure, they seem to be at risk when their ARM resets. They don’t have $500 in disposable income, entertainment budget, or other areas where they can simply cut back on and make up that new difference. There may not be any less affordable housing in their area. They have very few options.
But here in SoCal, especially in San Diego, the typical ARM, the typical new homeowner, seems more likely to be the ones making $70K to $100K, who’s payment is more like $2700… when their payment jumps to $3300 or $3500, it doesn’t strike me all that realistic that they will default based on that difference. They will either suck up the difference out of their discretionairy budget, trade in the Lexus SUV lease for a Toyota, or move down from that 4BR in Carmel Valley to a 3 BR in Escondido. They have plenty of options.
Basically, that whole ARM default tidal wave that we may or may not be facing, appears to me to be centralized in lower income, lower housing price areas… in other words, not here in SD county…. (maybe in Florida, Kansas, Pennsylvania, etc) I find it hard to believe that a whole lot of folks in their $750K new constructions in areas like SD central, coastal and inland and North County, will just have to walk away from them. Will people who make ~$12K a month default en masse because their ARM went from $2.5K to $3.5K or even $4K, ? I can’t see it.
