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Three Cents Worth: Entering Markets Without ARMs

[This week, our market analyst and chartmaster Jonathan Miller tackles the relationship between entry-level apartments and adjustable rate mortgages.]

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It would seem logical that the sale of entry-level Manhattan apartments, which tend to be studios and 1-bedrooms, would correlate very closely with adjustable rate mortgages. First time buyers leave the rental market for home ownership as affordability grows. From 2001 to 2004, ARM mortgages fell about 3%, considered a huge decline in rates which should have accelerated the pace of sales of these apartments.

Other than studios and 1-bedrooms tracking very closely over the past ten years, there doesn't seem to be much of a pattern in the number of entry-level sales. The spike in the number of sales over the past year has been significant, outpacing the overall increase in units sold, yet ARM mortgage rates were generally stable after rising since 2004.

As ARM rates rise and fall, other factors such as employment, wages and the weak dollar also play a significant role. While those factors are all certainly important, I would have expected a closer correlation.

· Number of Sales of Studos and 1-Bedrooms vs. 1-Yr ARM Rates [Curbed]