jg – I’m not gonna predict where rates will be five years from now. It’s too hard to even predict what the GDP will be each quarter. But, the market is guessing that over the next 2-10 years rates will be the same or lower than they are now. Why else would one accept a lower interest rate on a 2, 5 or 10-year note than a 3 or 6 month T-bill ?
That said, the major issue for the second wave of ARMs is (as 4plexowner alluded to) whether or not at that point these folks are significantly under-water on their mortgages. A combination of higher rates and being underwater would likely make that second wave as devastating as the first. Other potential outcomes would be less devastating (lower rates and underwater, lower rates and above water, higher rates and above water).
I think we’ll have a pretty good idea in 24 months which way that second wave will head. For now, I’d consider all potential scenarios equally likely.
