Opting for riskier mortgages

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Kimberly Adams (1:01)

With rising interest rates, people are taking bigger risks when buying a home.

From Marketplace in Washington, I'm Kimberly Adams. The average rate on a traditional 30-year fixed mortgage just rose above 7.1 percent, the highest in more than two years. That's pushing more people towards adjustable rate mortgages, where the rate changes typically after five, seven or ten years. Marketplace's Samantha Fields has more.

Samantha Fields (1:28)

Nearly 10 percent of people who applied for a mortgage last week went for an adjustable rate, according to the Mortgage Bankers Association. That's up from 8 percent a month ago.

Susan Wachter at the University of Pennsylvania's Wharton School says it makes sense given how high rates are on a 30-year fixed.

Susan Wachter (1:45)

Seven percent is a daunting number, and an adjustable rate mortgage is 6 percent plus some change.

Samantha Fields (1:53)

Which can make a big difference in affordability. But she says adjustable rate mortgages can be risky.

Susan Wachter (1:59)

A 6 percent loan today could, depending on the term, it could in five years be 8.1 percent. And that is likely to be not affordable.

Samantha Fields (2:09)

A lot of people take out an adjustable rate mortgage, betting that rates will drop before their loan adjusts, and they'll be able to refinance, says Chris Mayer at Long Bridge Financial.

Chris Mayer (2:19)

That can be a dangerous game. It's not simple to predict mortgage rates.

Samantha Fields (2:23)

They could easily go up rather than down. And he says there's also always the possibility that home prices could fall.

Chris Mayer (2:29)

And if home prices fall, you're also not going to be able to refinance, particularly if you didn't have a huge down payment. So there's all sorts of risks that people should really be cognizant of.

Samantha Fields (2:40)

Especially if they're doing it in search of affordability. I'm Samantha Fields for Marketplace.

Kimberly Adams (3:03)

It's time once again for us to take the Marketplace Economic Pulse, our series where we get views on the economy from a range of perspectives. But the pulse is going to look a little different from now on. Going forward, we'll be checking in with reporters from local public media outlets across the country to tell us about the economic stories they're following in their communities and states. And our first guest is Yvette Fernandez. She's a reporter for the Mountain West News Bureau and Nevada Public Radio. Good morning, Yvette.

Yvette Fernandez (3:31)

Good morning.

Kimberly Adams (3:32)

You recently wrote a story about how many of the hospitality workers in Vegas are at risk of losing their temporary protected status. Some have already lost it. What's going on there?

Yvette Fernandez (3:44)

Well, you know, revoking TPS, or temporary protected status, is part of the administration's enhanced immigration enforcement efforts. The Trump administration has already ended TPS for about a dozen countries, everything from Afghanistan, Nicaragua, Syria, Yemen and others.

And the culinary union held a news conference just before the TPS status for people from El Salvador was going to stop on September 9th. The union spokesperson called it an emergency.

Nevada is home to close to 6,000 TPS recipients, and the culinary union is made up of members from over 170 countries, and 60% of their members are immigrants. So it's significant. But here's what also happened. Shortly after that deadline passed, the Trump administration suddenly put this decision on hold, saying that TPS for people from El Salvador would remain in effect. But it's not known if this is permanent or temporary, or even when a new announcement is going to be made.

Kimberly Adams (4:51)

How much would you say the loss of those workers, if this actually all goes through, would impact Vegas and the wider Nevada economy?