Monday, May 08, 2006

'Going in Blind,' 68% of Sacramento Buyers Opt for ARMs

From the Sacramento Bee:

In March about 68 percent of homebuyers in El Dorado, Placer, Sacramento and Yolo counties again turned to a wide variety of adjustable-rate loans that can badly surprise those who don't study their fine print.

Though the use of adjustables is down from early 2005's 77 percent in the region, some see warning signs in their continued dominance. On Tuesday, research firm DataQuick Information Systems reported an increase in overdue mortgage payments in the four-county region during the first quarter of 2006 compared with the same time last year. Those increases may worsen in months ahead as rising interest rates hike monthly payments. "We expect the risky loans to be a bigger factor later this year," said DataQuick analyst John Karevoll.

Pierini praises adjustable rate financing for getting her into a home she couldn't have bought otherwise. But she advises people who have options to use a fixed rate or wait. "Take your time, shop around and if at all possible try and get a 30-year fixed," she said. "If it means waiting an extra year or two, do it..."

Experts say adjustable rate loans generally work well in markets where values are rising and best when they're rising quickly. That's no longer the case in Sacramento and much of California. Yet buyers still get swept up in emotion while buying a house and often don't adequately think through their loan decisions, said Pam Canada, executive director of the nonprofit Neighborworks HomeOwnership Center in Sacramento..."My guess is there's a large percentage of people going in blind," Canada said. First-time buyers are especially vulnerable, she said, to a hurry-up atmosphere in which loan officers often say "just get this loan now and in a couple of years you can refinance."


Happy Renter said...

I'm sure everyone that took out an ARM felt they had to buy now and had no choice. They think by the time these loans amoritize they will have enough equity to refi into a fixed loan. This market screwed so many young people.

tom stone said...

if you bought in 2000 with an arm and refi'd to a fixed or sold before july '05 you made out like a bandit.however most people spent a lot more time researching their car purchase than their home purchase or loan...a lot of people do not know if they have a fixed or an adjustable loan!!!if brains were dynamite they couldn't blow their nose.