Mission De Los Arroyos Report Archive - July 2005

So When Will It End?

Everybody has an opinion. Whether you call this hot real estate market a bubble or not, you'd probably agree that it won't go on forever. But when will we see a change?

Here's an opinion: Investors currently buy one out of every four homes sold in the Valley. This started last year. Most investors finance their investment properties using adjustable-rate mortgages. The 3-year interest-only ARMs have been and continue to be particularly popular. Rates on these mortgages are locked for three years, but when the three years are up, it's more than likely borrowers will see significant increases in interest rates, perhaps even doubling their payments. Many theorize that investors will bail out before their rates increase. If this theory is correct, we'll see early-market investors begin to bail out sometime in 2007.

If they pull out quickly, it will be perceived as a "pop."  If they pull out slowly, the market will deflate slowly.

Granted, other things can and probably will impact the market before 2007. However, barring other potential adjustments or changes in the market between now and then, you almost certainly can count on an adjustment of some sort in that timeframe.