Mortgage Rates to Pressure Connecticut, National Economies

Another scheduled increase to adjustable rate mortgages is about to hit the nation and the state of Connecticut, which could put more families out of their homes.

But area economists predict that job and income growth will continue through the coming turbulence, and that the Connecticut mortgage crisis will not yield severe effects.

At the core of the housing problem for Connecticut and the nation are home loan packages, including ones with adjustable interest rates, according to Fairfield University economics professor Edward Deak.

Deak revealed his latest economic forecast for the state May 25. He and other economists discussed the forecast on Tuesday.

Many of the mortgage interest rates on those loans reset in May and are scheduled to jump by several percent in September, according to a March Credit Suisse analysis of the lending market.

Deak said some borrowers took loans at extremely low mortgage rates with the idea that, before the rate resets and goes higher, they would be able to qualify for mortgage refinancing at a fixed rate.

But because the home’s value has fallen, the person cannot get a new mortgage to cover the amount of the original mortgage, which means he or she cannot escape the higher interest rate, and higher payments.

“Connecticut is not exempt from this,” Deak said.

The Connecticut housing market may not be as highly reliant on these types of loans as that of the nation, he said, but according to 2005 data, more than 12 percent of home loans issued in Connecticut’s urban centers were ARMs.

When these borrowers can’t qualify for a mortgage refinance, the impact can harm the larger economy, according to Deak. Housing prices could drop in the face of higher supply as newly foreclosed homes go on the market.

The economy could also be slowed if people who can’t get mortgage refinancing start making higher payments and thus spend less on other goods and services; this reduces demand in other sectors of the economy, such as retail.

Deak is predicting housing prices will fall from a median of $311,800 in 2006 to $286,000 in 2008 before they start rising again. However, the Fairfield County market appears to be bucking this trend.

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