Recovering The Real Estate Market will take a joint effort from home buyers, lenders, Realtors and homeowners. Lets start with homeowners who don’t want to sell their homes, but have to because of increasing interest rates from ARM’s, and Lenders who hold the note. I have seen too many homeowners who got caught up in an ARM whose income today is not what they expected two or three years ago. So lets look just at ARM’s to get the ball rolling.
Seeing the PI for a $200,000 loan at 5.75% was enticing to see a payment of $1,168. For simplification and the sake of argument, lets say insurance is $50 monthly and taxes for the land alone are $12 a month, now the payment is $1,230 for PITI. In Tucson real estate taxes for new construction homes do not catch up with that of resale homes for a year or two. Suddenly a year or two down the road the homeowner may be looking at another $166 a month for taxes. Now they are looking at payments of $1,384. Here comes the rate adjustment. Suddenly the homeowners (formerly buyers) are looking at 6.75% instead of 5.75%. That PI base just jumped from $1,168 to $1,297. That $1,230 PITI payment they signed for at closing just took an unmanageable jump to $1,508 in just two years. Ouch. Most buyers look at the PI payment of $1,168 without seeing the other $340 a month coming. They definitely ignore what is coming down the road. Read the rest of this entry »
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