"The Housing Crisis is Helping the Housing Crisis"

The title of this blog is a quote from Spencer a few months back. It would be nice to try and make every title a reference or quote to Spencer, but we'll see how long I last...I'm not that clever. For now, it's a streak of 1.

At any rate, I wanted to address the dreaded adjustable rate mortgages (ARM) and how they have impacted the real estate market. For months now, they have been touted as the ugly poster child of the housing crisis, and rightfully so. Gobs and gobs of homeowners have lost their homes because their rates adjusted higher when it was time for the rate to reset. Ironically, this same scapegoat of our housing market may be the knight in shining armor we've all been waiting for. Let me explain.

Most forecasts for the 2008 housing market and the projected record number of foreclosures that will ensue are primarily based on the unprecedented number of ARMs that are set to adjust this year. In recent months, however, the market factors that determine how ARMs adjust have been in a free-fall. A year ago an ARM may have reset to 8.0% or more. Now, the average ARM is resetting somewhere in the mid 5%s. See this chart as an example of a rate index that influences these ARM resets, and you'll see what I mean. F-R-E-E F-A-L-L.

And why, do you ask? Well, this is where Spencer's quote comes into play. These ARM rates have been falling because the economy is sagging. The economy is sagging because, most would agrue, of our housing market. So, the housing crisis is leading to lower ARM rates that will help the housing crisis. "The housing crisis is helping the housing crisis."

What is the implication of these changing ARM interest rates? It has the potential to help many homeowners continue to afford their mortgage payments after their rates adjust, keep their homes, and avoid foreclosure. If many potential foreclosures are avoided in the coming months, it has the ability to stabilize our current housing market by preventing a big wave of foreclosed properties going up for sale.

I find it interesting that a factor that has the potential to turn around our housing market has not received much traditional media coverage. I thought it important to contrast the mass media hysteria circling this housing market with a sound, positive, albeit unsexy, perspective. I hope you enjoyed it.