Mortgage Payment Schock: From $558/mo to $1,929/mo

Interest rates for 30 year fixed-rate mortgages increased by .21% to 6.74% from 6.53%. The result will add insult to injury for Ajustable Rate Mortgage holders who face monthy payment adjustments in 2007. The recent hike in mortgage rates also serves as a sort of fire-breathing dragon in the path of prospective homebuyers, many of whom even without the rate hike face new challenges qualifying for home loans given their current take home pay.

"For people on the margin, any increase (in rates) will be bringing more people into the danger zone," says Susan Wachter, professor of real estate and finance at the University of Pennsylvania. "When we have a number of people already unable to make their payments and unable to refinance, these increases are significant."

Buyers who got an ARM loan in June 2005 and are facing their first payment adjustment now are in for a shock. Their monthly payments, assuming they bought a median-price home, would soar $558 a month to $1,929, according to Genworth.

Meanwhile, in Southern California median home prices (condos, single family homes, multiple-family homes) rose again in May 2007. But how much longer can the high prices sustain themselves in the middle to high range?

Median take home incomes are not rising and remain completely out of alignment (i.e. 10 times less than most single family home prices in OC) with reality. Inventories of homes in Orange County Southern California continue to rise. Tighter state lending standards such as SB 385 may pave the way to greater prudence, responsibility and financial oversight in the mortgage lending game.

And now the interest rates.

If mortgage brokers, realtors and desperate homesellers considered it a challenge to find buyers back in May, how will the rise in interests rates help?

It won't.

Now might be an appropriate time for the above parties to pray to the U.S. currency value and inflation Gods that the US dollar miraculously reunites with its previous spending power, otherwise things are going to get very, very ugly indeed.