4 ms·

There’s a ticking clock right now for 5/1 ARM. If rates stay elevated then many are going to be out of a home.

by ed25519FUUU 4y ago

skapadia 4y ago
Sure, but who was opting for an ARM in the last 5 years?
- htrp 4y ago
  You would be surprised.... a lot of flippers and even non-flippers betting on the ability to easily refi 5 years out. Publicly reported data: https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-dem...
- brink 4y ago
  Not the last 5 years - the last ~8 months.
- cameronh90 4y ago
  I know this article is about the US, but in the UK, 30 year fixes are very rare nowadays. Most people are on 2 to 5 year fixes which revert to adjustable or trackers. The norm here is to refinance to a new fix every few years. If rates were to go up to 8%+, a lot of homeowners here would be unable to meet their repayments. The basis of the stress testing we've been doing since 2014 was only whether people could afford their mortgage if rates rose by 3%.
- hackerfromthefu 4y ago
  Pretty much the rest of the world except america
snarf21 4y ago
We should outlaw ARM for most people. It should only be for "accredited borrows" like we do for investing. People who don't really understand the risks get screwed and it creates unnecessary bubbles.
- another_poster 4y ago
  To play devil’s advocate, we really should ban 30 year fixed mortgages, not 5/1 ARMs. I know it sounds contradictory, but hear me out. One of the Fed’s primary methods to control inflation is adjusting economic demand by making loans cheaper or more expensive. In our current regime of fixed mortgages, new home buyers disproportionately bear the cost of the Fed’s effort to reduce inflation, since only they need to pay the higher costs. But if everyone had ARMs, the cost of reducing inflation would be spread out over everyone with a mortgage, so the pool of people affected would be significantly wider and the needed interest rate increases to fix inflation would be significantly lower.
  - medvezhenok 4y ago
    There's also a much easier way to fix [monetary] inflation and that is fiscal - just raise taxes. Much quicker to propagate through the economy too. Just politically challenging. Right now fiscal is doing the exact opposite, i.e. giving people stimulus while FED raises rates.
  - snarf21 4y ago
    That is an interesting thought and I'll have to think about that more deeply. I think one thing that we need to remember is that with a fixed mortgage, you are paying tomorrow's mortgage at today's prices. As inflation rises and salaries rise to keep pace, your mortgage stays the same. It incentives home buying which is why there are so many government programs in this area. Obviously you don't want to just in at the top of the bubble, but getting in asap is a great strategy for most everyone.

There’s a ticking clock right now for 5/1 ARM. If rates stay elevated then many are going to be out of a home.

skapadia 4y ago

Sure, but who was opting for an ARM in the last 5 years?

htrp 4y ago
You would be surprised.... a lot of flippers and even non-flippers betting on the ability to easily refi 5 years out. Publicly reported data: https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-dem...
brink 4y ago
Not the last 5 years - the last ~8 months.
cameronh90 4y ago
I know this article is about the US, but in the UK, 30 year fixes are very rare nowadays. Most people are on 2 to 5 year fixes which revert to adjustable or trackers. The norm here is to refinance to a new fix every few years. If rates were to go up to 8%+, a lot of homeowners here would be unable to meet their repayments. The basis of the stress testing we've been doing since 2014 was only whether people could afford their mortgage if rates rose by 3%.
hackerfromthefu 4y ago
Pretty much the rest of the world except america

snarf21 4y ago

We should outlaw ARM for most people. It should only be for "accredited borrows" like we do for investing. People who don't really understand the risks get screwed and it creates unnecessary bubbles.

another_poster 4y ago
To play devil’s advocate, we really should ban 30 year fixed mortgages, not 5/1 ARMs. I know it sounds contradictory, but hear me out. One of the Fed’s primary methods to control inflation is adjusting economic demand by making loans cheaper or more expensive. In our current regime of fixed mortgages, new home buyers disproportionately bear the cost of the Fed’s effort to reduce inflation, since only they need to pay the higher costs. But if everyone had ARMs, the cost of reducing inflation would be spread out over everyone with a mortgage, so the pool of people affected would be significantly wider and the needed interest rate increases to fix inflation would be significantly lower.
- medvezhenok 4y ago
  There's also a much easier way to fix [monetary] inflation and that is fiscal - just raise taxes. Much quicker to propagate through the economy too. Just politically challenging. Right now fiscal is doing the exact opposite, i.e. giving people stimulus while FED raises rates.
- snarf21 4y ago
  That is an interesting thought and I'll have to think about that more deeply. I think one thing that we need to remember is that with a fixed mortgage, you are paying tomorrow's mortgage at today's prices. As inflation rises and salaries rise to keep pace, your mortgage stays the same. It incentives home buying which is why there are so many government programs in this area. Obviously you don't want to just in at the top of the bubble, but getting in asap is a great strategy for most everyone.