{"id":4,"date":"2005-08-08T15:21:00","date_gmt":"2005-08-08T22:21:00","guid":{"rendered":"http:\/\/seattlebubble.com\/blog\/?p=4"},"modified":"2010-10-27T14:41:31","modified_gmt":"2010-10-27T21:41:31","slug":"seattle-rides-high-on-interest-only-loans","status":"publish","type":"post","link":"https:\/\/seattlebubble.com\/blog\/2005\/08\/08\/seattle-rides-high-on-interest-only-loans\/","title":{"rendered":"Seattle Rides High on Interest-Only Loans"},"content":{"rendered":"

It seems that in the Seattle area, a lot<\/i> of people are confident that there’s not a bubble, as evidenced by the ridiculous loans that they’re taking out<\/a>:<\/p>\n

…38 percent of recent home mortgages in the Seattle-Bellevue- Everett market…were interest-only loans.<\/p>\n

38 percent for the first three months of 2005, up from 37 percent for all of 2004.<\/p><\/blockquote>\n

Yikes. Do these people even take pause to consider what their payments are going to be like if\/when interest rates start going back up?<\/p>\n

That compares with a national average of 19.1 percent nationally (actually down slightly from 2004) and 28.3 percent for the state of Washington.<\/p><\/blockquote>\n

Even 19.1 percent nationally seems high to me. How can lenders finance so many of these kinds of loans? Do they truly not see a risk in that?<\/p>\n

The gamble on interest-only loans (in which the borrower pays nothing on the principal) is a good one, as long as the borrower retains the ability to pay, or as long as home prices hold their value.<\/p><\/blockquote>\n

Which of course are both<\/i> in question when interest rates begin to go up.<\/p>\n

The comforting conventional wisdom around here has always been that housing deflation is someone else’s problem. With the natural constraints of water and mountains, artificial constraints such as growth-management regulations, continued in-migration and a robust, balanced economy, housing prices can only continue to go up. Let those cities with vast expanses of flat developable land such as Dallas or Atlanta worry about bubbles.<\/p><\/blockquote>\n

If people around here really believe that, they may be in for a rude awakening here soon.<\/p>\n

In 2001, LoanPerformance says, the national and local averages for interest-only loans were both below 2 percent.<\/p><\/blockquote>\n

From 2 percent to 38 percent in just five years<\/i>. If that’s not a warning sign, I don’t know what is. In spite of this, here is this reporter’s conclusion:<\/p>\n

Those who buy a home with the expectation of selling it within a few years are playing the greater-fool game — that there will always be someone to pay a higher price for an asset than you did. For the past decade and a half in Seattle, that’s been a good bet. It may continue to be a good bet for the rest of this decade.<\/p>\n

But it is a bet. Housing-price appreciation is not guaranteed in the Constitution. Should conditions change, a lot of borrowers may discover, unhappily, that even in this locale, well-heeled greater fools are not an inexhaustible resource.<\/p><\/blockquote>\n

(Bill Virgin, Seattle P-I<\/a>, 06.23.2005<\/i>)<\/p>\n","protected":false},"excerpt":{"rendered":"

It seems that in the Seattle area, a lot of people are confident that there’s not a bubble, as evidenced by the ridiculous loans that they’re taking out: …38 percent of recent home mortgages in the Seattle-Bellevue- Everett market…were interest-only loans. 38 percent for the first three months of 2005, up from 37 percent for…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[612,198],"tags":[19,26],"coauthors":[],"class_list":["post-4","post","type-post","status-publish","format-standard","hentry","category-local","category-news","tag-seattle_pi","tag-virgin"],"yoast_head":"\nSeattle Rides High on Interest-Only Loans \u2022 Seattle Bubble<\/title>\n<meta name=\"robots\" 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