Chart of the day: low ARM rates

This chart from the New York Times demonstrates visually what happens when the Fed lowers interest rates too much: it skews simple economic decisions like what type of mortgage product to use, often with unintended consequences.

Similarly low rates on adjustable rate mortgages enticed buyers into the housing bubble.

This post is part of my chart of the day series.

2 Comments
  1. Anonymous says

    These are the opinions of Robert Sheridan, CEO of Sheridan & Partners, a Chicago-area real estate & development company. Their site is http://www.sheridanpartners.com/market.php.

    A Bad Thing for Housing Gets Worse

    The lead article in the 8/4/08 issue of The New York Times by Vikas Bajaj, “Housing Lenders Fear Bigger Wave of Loan Defaults,” comes as no surprise. Bajaj’s reporting illuminates a problem that has been apparent for a long time: foreclosures will be greater than recent estimates (now, even homeowners with good credit are finding themselves caught up in the morass) and price declines are likely to be deeper.

    What is not immediately as obvious is that this bigger-than-expected wave of defaults will likely push “the bottom” out further. It’s hard to see it occurring in most markets before 2010.

    Read the article here:

    http://www.nytimes.com/2008/08/04/business/04lend.html?_r=1&scp=2&sq=vikas%20bajaj&st=cse&oref=slogin

    Phil Collins

  2. Edward Harrison says

    I would have to agree with that, Phil. Sorry for not responding earlier, I just saw your comment. Housing seems to be accelerating down less rapidly, so maybe we ride this out through 2009 before we see any measurable uptick in house prices and an associated downtick in defaults and related writedowns.

    That said, investing in some sectors and companies is already starting to look attractive.

Comments are closed.

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