Market shifts in favor of ARM borrowers – Zillow

“Housing market conditions and the profile of ARM borrowers should bring comfort to anybody scarred by the memory of risky lending practices during the Great Recession,” said Nicole Bachaud, senior economist at Zillow. “It’s important not to confuse some added risk for an individual borrower with risk to the housing market as a whole.

“Borrowers today are more financially prepared for home buying, and the housing market has a much stronger outlook than the last time ARMs were this popular. While not the best option for every buyer, ARMs can be beneficial for households on solid financial footing that can stomach the possibility of higher payments down the road.”

The report showed that borrowers who recently financed their home purchase with an ARM appear to have higher median incomes and larger down payments than other borrowers. The median income of buyers who took out an ARM loan was $165,000 in 2021, compared to $91,000 for all borrowers. The typical ARM home buyer put 23.6% down, while the typical borrower overall put down 10%.

“It’s likely today’s typical ARM borrower would be able to withstand increased monthly payments if mortgage rates were to rise,” Zillow said.