Only One Household In Seventeen (??) Will See Their Mortgage Rates Reset In 2006

Peter Coy

Let me preface this blog item by saying it has gone through several permutations. First the headline said one in 20. Then it said one in 24. Now it says one in 17 (??). Why the (??)? Because the numbers are just a little fuzzy. A press release from Harvard today put the share at one in 10. But when I spoke to the researchers, they said the number in the press release was probably too high and the number is probably in the range of 6%, which would be about one in 17. Sorry for the mess.

Here's my latest cut:
According to the authors of a new Harvard University study, somewhere in the range of 6% of U.S. homeowners have mortgages whose rates will reset upward in 2006.


That's comforting to people worried about the impact of higher interest rates on the housing market. Here's the math: Only about two-thirds of homeowners carry a mortgage at all. Of those, only about one-quarter have adjustable-rate mortgages. And of those with adjustable-rate mortgages, only about one-quarter are scheduled to reset their rates in 2006. That's one-quarter of one-quarter of two-thirds, which Excel tells me is 4%. On top of that you have to add people with low teaser rates that will expire this year. That brings the share of homeowners with resetting mortgages to somewhere between 5% and 10%, with 6% being the most likely number, Rachel Bogardus Drew, one of the authors, said in an interview today.
What's more, the Harvard study says, the vast majority of people have enough equity in their homes that they won't be underwater on their mortgages even if housing prices do fall somewhat. As of 2004, the most recent year for which numbers are available, only 3% of households have less than 5% equity in their homes, and fully 87% of households have at least 20% equity.
The annual Harvard study, The State of the Nation's Housing 2006, also has a bunch of more worrisome statistics about affordability, etc. It's an excellent resource that I recommend to anyone in the business.

(Dear Readers: I accidentally broke the media embargo by posting this item last week before its official release date. When Harvard complained I took it down. Today is the official release date, so the item is back up.)

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