Some people think that all the adjustable-rate mortgage loans written over the past couple of years will cause the US economy to collapse, as they reset to higher rates, and borrowers decide to walk away from their financial commitments.
Some people think that most people will be able to absorb these higher payments for two reasons: one, interest rates may have stabilized; and, two, personal incomes are rising at a 2-3% rate, per year, offsetting any increases in mortgage loan payments.
Jonathan J. Miller, at Matrix, agrees:
I think the overall problems related to the mortgage delinquency rate will be strongly influenced by how quickly mortgage rates move upward. Right now mortgage rates are projected to be stable as the economy continues to weaken and inflation is held in check. However, mortgage rates are already higher than when many adjustable rate mortgages (approximately 30% of the all mortgages) were issued.
Rising personal incomes may serve to contain the problem since the areas with the highest real estate investor concentrations are located in areas with the largest personal income upside. I wonder if good job prospects in these areas helped fuel the speculative characteristics of local market.