Ethical Homes

An article from Kenneth Harney in the Washington Post discusses recent statistics showing that buyers in highly inflated markets are less likely to fall behind on payments than the average buyer.

One common argument that people make for markets like the DC market being in a “bubble” that is ready to burst is that appreciation in property values has outpaced income growth, so that people won’t be able to afford the higher-priced properties; if that were the case, though, then buyers would be defaulting on their mortgages more often in this market, which isn’t happening. Of course, a large part of the reason that buyers are able to not fall behind on their payments are that those payments aren’t any larger than they would have been on the lower-priced properties of yore, thanks to record low interest rates. Rising rates will thus spell trouble for buyers who have adjustable-rate mortgages, and will reduce the number of buyers who can afford the high-priced properties in the future, but rates would have to raise very quickly to cause a market bubble to burst, rather than to slowly deflate—real estate is imply too illiquid for rising rates to prompt a panic and selling frenzy of the sort that is possible in the stock market.