HSH Associates reported mixed results for last week's average combined mortgage rates. While rates for a 30-year fixed-rate mortgage (FRM) dropped by three basis points to 5.33 percent, average combined rates for 15-year FRM loans rose three basis points to 4.64 percent. Average combined rates for 5/1 adjustable-rate mortgage (ARM) loans gained one basis point to 4.01 percent.
Expected option ARM "time bomb" fizzles: good news for US housing markets
Critics of ARM loans (loans that offer an introductory low fixed-rate for a specified period before converting to an adjustable rate) predicted a time bomb effect when these loans started to reset to adjustable rates. The good news is that many of these loans failed before resetting, and ongoing lower interest rates have kept mortgage payments from spiking.
In some cases, consumers have sung the praises of option ARM loans as their rates have decreased rather than increasing as expected. Although the news of option ARM loans defaulting before resetting is not exactly great news, it provides a ray of light looking ahead, as the anticipated time bomb scenario with many loans going into default when they reset likely won't occur. It appears that the loans doomed to default have already done so.
This is positive news for the U.S. housing market, which carried about 2.2 million foreclosed homes as of Dec. 31. A continued glut of foreclosed properties drags down property values in general.
The domino effect of foreclosures and depressed property values
Although lower home prices catch the eye of potential buyers, the consequences of diminished home values impacts neighborhoods, communities, and homeowners who cannot refinance their mortgages. Rising mortgage rates can also delay a housing market recovery, but when considering mortgage rates over time, current mortgage rates remain relatively low and continue offering opportunities for potential home-buyers.
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