Softening in RE market?? (Dallas, Howe: moving, discount, activity)

[KerrTown]

Originally Posted by jiping

Brad and Virginia Reitinger closed on a new home in Dallas two weeks ago, and opted for an adjustable-rate mortgage so they could get a 4% rate. With a fixed-rate 30-year loan, they would have had to pay 4.5% to 5%, Mr. Reitinger said.

ARMs, the same thing that got California's housing market in trouble during the '09 recession. The cost (or the aftermath) of the amputations for the ARM or the LEG are not funny, however.

[TheOverdog]

ARMs, the same thing that got California's housing market in trouble during the '09 recession.

ARMs did not cause any problem in California because rates adjusted downwards from like 2006-2016. They were a 'boogey man' in that they could have caused problems if rates had risen. Everyone who got a mortgage in 2008/2009 (that would be me) refied from 5%+ down to a 2.9 -3.5% afterwards.

[numbersguy100]

Originally Posted by KerrTown

ARMs, the same thing that got California's housing market in trouble during the '09 recession. The cost (or the aftermath) of the amputations for the ARM or the LEG are not funny, however.

Low/no down payment loans, no doc, and zero/negative amortization loans were the bigger culprits. I work in finance so I knew to reject it, but I definitely had a broker try to offer me a “pick your payment” loan where payments could be interest only, or less than interest charge, meaning balance increases over time. Such loans are probably always a bad idea but even if they should exist are probably suitable for something like 0.01% of the population.

[EDS_]

Originally Posted by KerrTown

ARMs, the same thing that got California's housing market in trouble during the '09 recession. The cost (or the aftermath) of the amputations for the ARM or the LEG are not funny, however.

100% false.

[mikestrong]

I am doing a ARM on my home I am building and I sell new homes. This is the second time I have done one. Nothing wrong with them.

[TurtleCreek80]

Originally Posted by mikestrong

I am doing a ARM on my home I am building and I sell new homes. This is the second time I have done one. Nothing wrong with them.

Why would you do an ARM now when interest rates are rising and will likely continue to rise? I would only consider an ARM in a declining rate environment.

[synchronicity]

Originally Posted by numbersguy100

Low/no down payment loans, no doc, and zero/negative amortization loans were the bigger culprits. I work in finance so I knew to reject it, but I definitely had a broker try to offer me a “pick your payment” loan where payments could be interest only, or less than interest charge, meaning balance increases over time. Such loans are probably always a bad idea but even if they should exist are probably suitable for something like 0.01% of the population.

I have a fun story like this. We bought our first house in 2004, and the mortgage broker suggested a variable rate mortgage tied to LIBOR (so it adjusted right out of the gate, tied to one of quickest rates to move that's out there), but where the PAYMENT was fixed for the first five years (to whatever 30 year P&I would be at the initial interest rate). And the broker proudly told me "and it's not a neg-am!"

I replied "not NOW, but if LIBOR moves up by 80 bps (or whatever it calculated out to at that time, somewhere around there or lower), it will BECOME a neg-am!"

Her response was "huh?" It was clear she didn't really understand the product or the risks.

She then told me "well, all the traders I know are doing this". To which I replied "sure, they want the lowest current interest rate they can get, because they're just trying to make money on arbitrage. They don't need mortgages! If rates rise against them they'll just close the position with cash. Sadly, I don't have several hundred thousand of loose change sitting around!"

"Huh?!" was the response again.

I got a 5/1 ARM, because we didn't expect to be in the house more than 7 years and the delta between that and a 30 FRM was fairly high at the time. A year or so later we refi'd into a 30 year FRM because rates had fallen, the delta between that and the 5/1 ARM had decreased as well, and as we had unpacked and fixed things up we realized we had NO intentions of doing that again any time soon.

Six year later, we moved a thousand miles to here. Life likes to mess with us.

[EDS_]

Originally Posted by TurtleCreek80

Why would you do an ARM now when interest rates are rising and will likely continue to rise? I would only consider an ARM in a declining rate environment.

1). If one expects to move before the first adjustment or given the adjustment schedule even later........ARMs may make perfect sense.

2). It's anecdotal but my son and his wife are looking to buy next spring. His medical residency pay is right at $60K. Her pay right now is 0. However, she'll begin residency next year. They will be able to leverage her residency contract toward ratios etc. when she signs even though she won't start until deep into the summer. Their incomes in the short term don't match what they'll be making in 5.5yrs. (they are tracking to finish residency at the same time). A 6 or 7 year fixed period ARM may make sense for them. Given the price range in consideration they could cash-buy the house with a comfortable portion of their first year post residency pay or sell it during year 6 or 7.

3). Also one may always bail on an ARM if fixed rates become more attractive in the future.

[mikestrong]

Originally Posted by TurtleCreek80

Why would you do an ARM now when interest rates are rising and will likely continue to rise? I would only consider an ARM in a declining rate environment.

Because I will be in my home 3 to 4 years only. Thats what ARM's should be used for.

[djslakor]

Originally Posted by synchronicity

I have a fun story like this. We bought our first house in 2004, and the mortgage broker suggested a variable rate mortgage tied to LIBOR (so it adjusted right out of the gate, tied to one of quickest rates to move that's out there), but where the PAYMENT was fixed for the first five years (to whatever 30 year P&I would be at the initial interest rate). And the broker proudly told me "and it's not a neg-am!"

I replied "not NOW, but if LIBOR moves up by 80 bps (or whatever it calculated out to at that time, somewhere around there or lower), it will BECOME a neg-am!"

Her response was "huh?" It was clear she didn't really understand the product or the risks.

She then told me "well, all the traders I know are doing this". To which I replied "sure, they want the lowest current interest rate they can get, because they're just trying to make money on arbitrage. They don't need mortgages! If rates rise against them they'll just close the position with cash. Sadly, I don't have several hundred thousand of loose change sitting around!"

"Huh?!" was the response again.

I got a 5/1 ARM, because we didn't expect to be in the house more than 7 years and the delta between that and a 30 FRM was fairly high at the time. A year or so later we refi'd into a 30 year FRM because rates had fallen, the delta between that and the 5/1 ARM had decreased as well, and as we had unpacked and fixed things up we realized we had NO intentions of doing that again any time soon.

Six year later, we moved a thousand miles to here. Life likes to mess with us.

Do you realize how low the barrier to entry is to be a "mortgage broker"? Many places hire highschool grads. It's not like you're talking to a person that can solve net present value problems or do any critical thinking. They're there to originate sales then move on to the next sucker. You were asking her to think.