The article below reflects a change in attitude by consumers about interest rates and the types of loans they are seeking. By opting for a fixed rate instead of a variable or interest only loan buyers will qualify for smaller loan amounts then before. If the buyer pool continues to shrink ( currently only 15% of people in the Los Angeles area can afford the median priced home) you may begin to see homes stay on the market longer and price gains may slow. Don't expect to see any major price declines just a slower market.
USA Today Article:
As short-term interest rates rise, demand for adjustable-rate mortgages is cooling off. ARMs made up just 27.9 percent of all home loan applications last week, the smallest share since March of last year, according to the Mortgage Bankers Association.
Interest rates for ARMs have been on the rise since the beginning of the year, while borrowing costs for fixed-rate mortgages are lower than a year ago. Rates for the two products are so close now "that the benefit of doing an ARM isn't as great as it had been," says Bill Emerson, CEO of Quicken Loans.
Source: USA Today (07/14/05); Block, Sandra; Kirchhoff, Sue
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