California's home buyers increasingly choose ARMs
December 26, 2003
La Jolla, CA.--A rising portion of California's home buyers are
financing with adjustable-rate mortgages as rising prices and rate
increases earlier this year make it harder to buy, a real estate
information service reported.
The percentage of buyers who financed with an ARM reached 52.3
percent in November, passing the halfway mark for the first time since
February 1995 when 52.7 percent of all buyers chose ARMs. A year ago
28.9 percent chose ARMs. The all-time peak was in September 1988 when
66.1 percent financed with ARMS, according to DataQuick Information
Systems.
By choosing an ARM, the homeowner takes on risk as interest rates
fluctuate. ARMs are typically cheaper, and are generally easier to
qualify for than fixed-rate mortgages.
"ARMs were probably underused a year ago because of a risk averse
financing environment. While interest rates have come up somewhat
since summer, most of the current increase in ARM usage has to do with
rising prices," said Marshall Prentice, DataQuick president.
The median price paid for a California home was $324,000 in
November, up 16.1 percent from $279,000 for the same month a year ago.
The interest rate on a thirty-year fixed-rate mortgage with two
"points" was 5.6 percent a year ago, it dipped to 4.8 percent last
June, and is currently 5.5 percent. In the fall of 1988 interest rates
were over ten percent.
DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler
and Associates, monitors real estate activity nationwide and provides
information to consumers, educational institutions, public agencies,
lending institutions, title companies and industry analysts. The ARM
percentages include all "hybrid" mortgages, which are typically home
loans that have a fixed rate for several years, and a cap on how high
they can adjust.
ARM usage is highest in the Bay Area (see chart), where homes are
most expensive, and lowest in the Central Valley and rural areas where
homes cost much less.
The typical monthly mortgage payment that California home buyers
committed themselves to paying was $1,478 in November. A year ago it
was $1,284. In April 1989 it reached $1,278 when interest rates were
over eleven percent. In today's dollars April 1989 "typical" payment
would be $2,216.
Percentage of home buyers choosing
adjustable-rate mortgages
|
County/Region |
Nov-02 ARM% |
Nov-03 ARM% |
| Los Angeles |
29.5% |
52.9% |
|
Orange |
33.3% |
60.1% |
|
San Diego |
37.1% |
64.5% |
|
Riverside |
27.2% |
49.9% |
|
San Bernardino |
20.5% |
40.9% |
|
Ventura |
34.8% |
58.3% |
|
SoCal |
29.7% |
53.7% |
|
San Francisco |
44.5% |
60.0% |
|
Alameda |
43.0% |
64.2% |
|
Contra Costa |
40.7% |
63.0% |
|
Santa Clara |
48.8% |
68.1% |
|
San Mateo |
50.6% |
65.0% |
|
Marin |
43.0% |
67.6% |
|
Solano |
34.1% |
62.1% |
|
Sonoma |
36.8% |
59.4% |
|
Napa |
39.2% |
63.2% |
|
Bay Area |
42.7% |
64.2% |
|
Santa Cruz |
39.5% |
62.0% |
|
Santa Barbara |
25.8% |
55.5% |
|
San Luis Obispo |
28.7% |
45.2% |
|
Monterey |
34.7% |
65.2% |
|
Coastal Counties |
31.4% |
58.3% |
|
Sacramento |
21.0% |
46.9% |
|
San Joaquin |
28.3% |
55.9% |
|
Placer |
21.2% |
50.3% |
|
Kern |
8.8% |
21.4% |
|
Fresno |
12.0% |
31.9% |
|
Madera |
13.4% |
32.9% |
|
Merced |
25.6% |
54.7% |
|
Tulare |
6.3% |
17.1% |
|
Yolo |
17.9% |
47.6% |
|
El Dorado |
20.2% |
37.8% |
|
Stanislaus |
24.8% |
54.1% |
|
Yuba |
12.2% |
23.4% |
|
Central Valley |
18.7% |
40.3% |
|
Mountain Regions |
16.2% |
37.9% |
|
Rural N California |
8.7% |
23.8% |
|
Statewide |
28.9% |
52.3% |
|
|
Source: DataQuick Information Systems
Media Inquiries: John Karevoll (909)867-9534