Adjustable rate mortgages sounded good at the time, but now all those low interest rate loans are steadily rising and putting the pinch on a larger number of homeowners.
“While interest rates are expected to be flat or up slightly in 2007, there are roughly $500 billion in outstanding adjustable rate mortgages that will see a monthly payment increase due to an interest rate re-set, the start of amortization, or both,” said Amy Crews Cutts, Freddie Mac deputy cheif economist.
“Other homeowners have second liens that adjust each month depending on changes in the prime rate,” she said, and Freddie Mac expects that many borrowers facing payment increases this year will refinance those loans.

Here is one reason analysts are being careful not to wave the all-clear sign: A large number of homes for sale are unoccupied. In the third quarter of last year, there were 5.7 million vacant housing units for sale or rent, accounting for a record 4.6% of all US homes. The average in the 1990’s was 3.5%. To get this ratio back to normal 1.3 million vacant homes would need to be occupied.
High vacancy rates have other effects, points out Credit Suisse analyst Ivy Zelman. When an occupied home gets sold, the seller has to buy another house. When a vacant home gets sold, the seller doesn’t have to do anything. That sets off a chain reaction that ripples through the housing market.
The owners of the unrented, unsold homes bear costs. They have insurance, lawn care, taxes, and often a mortgage payment. Seeing those costs pile up can motivate an owner to sell or rent at a lower price. When a house sells at a lower price, other would-be buyers expect lower prices as well. When it rents for less, it becomes a more attractive alternative to buying. The good news (yes, there is good news) is that trouble in housing hasn’t spelled trouble for the rest of the economy. Lower interest rates give households more buying power.

The housing market has made a soft landing and will gradually pick up again over the next several months. That is the prognosis from the National Association of REALTORS economist David Lereah.
“Despite the doomsayers, household wealth will not evaporate and the economy will not go into a recession. If you’re in it for the long haul, housing is a sound investment,” Lereah said.
The national median existing-home price is expected to rise 1.9% to $226,200 in 2007, after rising 1.1% in 2006. The median new-home price is expected to increase 1.8% to $249,800 in 2007, and in 2008 existing-home prices are forecast to rise 3.4%.