Rank Metro area Interest-only mortgages as share of total, 2004
1. San Diego 47.6%
2. Atlanta 45.5%
3. San Francisco 45.3%
4. Denver 43.4%
5. Oakland, Calif. 43.1%
6. San Jose, Calif. 41.1%
7. Phoenix-Mesa 38.3%
8. Seattle-Bellevue-Everett 37.2%
9. Orange County, Calif. 37.0%
10. Ventura, Calif. 35.3%
Roughly half of the peak buyers in San Diego owe their entire loan if not more and it makes them more exposed if rates were to rise, or should I say, continue to rise. Interest only doesnt mean interest only forever. It is merely a way to rent and freeze the price for 2-10 years, then pay the remaining 20-28 years at a higher payment than the 30 yr fixed that they couldn’t afford. It is a bet, like any other, that home prices will rise and interest rates will not. Looking back over the last two years, it wasn’t the right play.
According to the chart, the reaper has come calling on these people and he will stick around for about 2-3 years. I used to be excited that I was right but now I am starting to worry about friends and co-workers who drank the kool aid. You only get so much satisfaction from “I told you so.”
