The New York Times reports As Household Debt Rises, New Risk in Higher Rates. The article reports on the increasing trend toward zero-interest loans and adjustable-rate mortages. Borrowers perceive these loans as having no risk because of their belief in the continued and guaranteed appreciation of their homes. They are also making a bet on the persistence of low interest rates for the duration of their mortgage.
- Responding to lower interest rates last year, homeowners refinanced $140 billion worth of mortgages in which they borrowed additional money. Mortgage lenders, in the meantime, rolled out scores of new kinds of loans, allowing people to borrow far more than they might have contemplated a decade ago.
The new loans go well beyond adjustable-rate mortgages. They include interest-only loans; “no document” loans, which allow people to borrow money at higher rates without proving their income or assets; and “no ratio” loans, which simply ignore a person’s monthly income.
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So when will it crash, and how far will it go?
There are going to be some terrific bargains in real estate in a few years. Save your pennies!
And remember, you heard it here first.
Peter,
I agree. I’ve been watching the RE market in a certain resort town in Colorado for the last couple years, as I’ve reached the point in my life where I can afford a vacation property.
After the tech crash, I expected these properties to come down in price, but it hasn’t happened due to low interest rates.
So, I’ll sit and wait a couple more years instead of paying an outrageous price for a vacant piece of land. Who knows? In a couple years, I may be able to get that same piece of land for the same price, but with a home already on it!
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