More Housing, cont.
- Posted by ryan on February 18th, 2008 filed in Economics
But then, Calculated Risk notes that Georgia’s problem loan rate is higher than Florida’s, despite the fact that Atlanta’s home price trajectory looked downright anemic during the boom. What’s with that?
One reason might be that Georgia led the nation in Interest Only loans. Another might be that lenders are able to foreclose quicker in Georgia..
Ok, but why so many interest-only loans? Given the (relatively) low prices in the state you might expect that fewer buyers would need or choose the IO option. But then, there doesn’t appear to be much correlation between prices and IO percentages across the nation. Looking at some of the nation’s more expensive markets, you see that the Bay Area has a huge IO problem, while the New York area is on the low end of the scale. Weird. I’d love to see an explanation of the underlying forces here.
February 19th, 2008 at 9:22 am
Never understood interest only mortgages. You’re not paying off the principle, you’re not building equity. If you’re only staying in an area for a couple years, aren’t you better off renting anyway? It just seems like a shyster tool to separate suckers from their money. Maybe there are fewer suckers in NY than SF and GA?
February 19th, 2008 at 9:53 am
Well, I’m sure most buyers were counting on making a ton of money from housing price appreciation. If the market’s going up, it’s an easy way to leverage a lot of dough into big profits.
And I believe many of them switch to principle+interest a few years in. I guess it could be the case that people expect their income to grow considerably.
But no, I never thought they made any sense, either.
February 19th, 2008 at 5:26 pm
There are so few IO loans in New York because co-op boards generally require 25-50% cash.
February 19th, 2008 at 5:32 pm
Ok, but the incidence of IO loans is pretty low in the burbs, too. Jersey and Connecticut. The Boston metro area also has a low rate.
Given the low levels in the Northeast and Midwest, I am inclined to believe it has something to do with regulations. I just would have thought that California would have gotten on that train, too.