Part 1 on this short series about the housing bubble is here, driven by several articles from Fortune Magazine. Lately I’ve been splitting some of my longer posts into several parts — it’s better for digestion (metaphorically or otherwise).
Today, about a third of new mortgages are nonstandard, fuzzy-math loans that have allowed many Americans to reach for more home than they can really afford.
Should you rethink your mortgage? For severl years now, mortgage providers have been pushing adjustable rate mortgages, even for those who planned in staying in their homes for a while. There were big pushes to refinance a higher rate fixed mortgage with a lower rate adjustable. The companies knew that rates would eventually go up — they couldn’t really move farther down down — and borrowers would be locked in at a higher rate.
Many of these borrowers will end up ni a stick situation as their monthly payments inevitably increase. The article does mention some “good” uses for adjustable rate mortgages and interest-only loans.
How valuable is your equity? When it comes to housing market downturns, people are quick to cite the late 1980s and early 1990s. The example here is of a condo in Connecticut bought for $98,000 in 1989, sold for $82,000 two years ago. Fifteen years later, the condo was still lower than its 1989 value.
Home prices have risen slightly more than 1 percent annually after inflation. Chances are, appreciation in the future will look more like that, at best, than like the heady figures we’ve seen in recent years.
Updated February 7, 2012 and originally published December 21, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.