USC: ARMs Could Pose Problem in 3-7 Years

Adjustable-rate mortgages could cause problems for Southern California homeowners in three to seven years as they convert from fixed to adjustable rates, according to the Lusk Center for Real Estate at the University of Southern California."If interest rates increase, some buyers may not be able to afford the higher payments and may have to sell their homes," said the Lusk Center's Raphael Bostic, a former economist for the Federal Reserve Board who specializes in tracking the home mortgage market. "This could cause a sudden rush of homes on the Southern California market and depress prices." However, despite this long-term concern, Dr. Bostic said Southern California is not threatened by a "bubble" in housing prices. "As interest rates increase, the region's home sales will slow to more moderate but sustainable levels, and prices will increase more slowly," he said, pointing to the region's employment growth and housing demand as evidence that home prices are not being artificially inflated. The Lusk Center can be found online at http://www.usc.edu/lusk.