Real Estate: The Trillion-Dollar Bet

From the NY Times:

American homeowners have made a trillion-dollar bet that mortgage rates will remain near record lows for at least a few more years.

The bill will soon start to come due in a serious way, as the initial period of fixed payments, typically set at artificially low rates, expires for millions of homeowners with adjustable-rate mortgages.

This year, only about $80 billion, or 1 percent, of mortgage debt will switch to an adjustable rate based largely on prevailing interest rates, according to an analysis by Deutsche Bank in New York. Next year, some $300 billion of mortgage debt will be similarly adjusted.

But in 2007, the portion will soar, with $1 trillion of the nation's mortgage debt - or about 12 percent of it - switching to adjustable payments, according to the analysis.

The biggest concern, many economists say, is that the new mortgages have come onto the market at a time when low interest rates and rapidly rising home prices are the only reality many people can imagine. Families might be making decisions assuming that combination will last forever.

Here's the link to the full article.