Tuesday, June 27, 2006

Mortgage Reset

The US consumer is loaded with debt. There are $1 trillion of adjustable-rate mortgages that are due to be reset this year, and $1.7 trillion to be reset next year. This means that legions of home-owners will have to cough up 25% more every month -- and in some cases up to 60% more to service their mortgages. This will put a squeeze on millions of home-owners, and many will have to cut back on their spending or even lose their homes.

Remember, it was the boom in housing that saved the US from recession when the market collapsed during 2000 to 2002. Total mortgage debt is now $8.2 trillion while total equity in real estate is about $10.9 trillion. Should home prices fall say 20%, this would mean a loss in home equity of $3.8 trillion, an amount that would certainly put a crimp in consumer spending. With the Bay Area loaded with ARM's - watch out!


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12:47 AM  
Blogger Forrest Cutler said...

Yeah, watch out for ARM's, Alt-A (no income type loans), Option Arms...all of it. Fortunately, those that hang in there and can actually pay for their mortgage can still get very low California mortgage rates.

11:57 AM  

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