Codex Perductum

A never-ending source of conversation in Orange County is the current [insane] state of the real estate market. It has clearly been cooling off, but what seemed like an inevitable continued rise in real estate value has a risk which many didn't consider. That would be the cost of the mortgage payments when the market changes.

This article ('Exotic' mortgages seen losing their allure - Real Estate - MSNBC.com) talks about what happens when many over-leveraged people have to face the music.

"Now these cheap mortgages that fueled the real-estate boom are beginning to hurt the homeowners they once helped. Higher interest rates and the end of honeymoon periods for too-good-to-be-true teaser rates are increasingly causing payment shock for borrowers.

'Nationwide, approximately $400 billion of [home-purchase adjustable-rate mortgages] are scheduled to reset at some point in 2006,' said Frank Nothaft, chief economist with Freddie Mac in McLean, Va. 'A significant number of homeowners will face some adjustments.' In fact, the ARMs with scheduled payment increases this year work out to about 5 percent of all single-family debt outstanding in the country now, he said."

I take a little bit of selfish-evil glee in this because when we moved to the O.C. I had a real estate agent trying to convince me that if I wanted to buy a house that this was what I had to do. I told him it was insane and he gave a little head shake and a disparaging you-just-don't-understand look.