Daily Mortgage Rates News – Increase in Rates Inevitable?
Posted on | May 30, 2009 | 4 Comments
Daily mortgage rates news provides you with current information on the real estate and mortgage market. Today’s article looks at the prospect of higher mortgage rates due to the increase 10 Year Treasury Yield
The correlation between the 10 year treasury yield and the 30 year fixed mortgage rate is undeniable. Since Freddie Mac started documenting average mortgage rates back in 1971, the relationship between the 10 year treasury yield and mortgage rates is almost exact. When yields increase so do rates; when yields decrease rates follow suit. If this is the case then why has the 10 year treasury yield been uptrending since January but mortgage rates have been in a steady downtrend? Government interaction!
Investor Glossary defines the 10 year treasury yield as
A 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. A 10-year Treasury Note is issued with a defined rate of interest, or coupon rate (for example 5% of the note’s face value). Every year, holders of the 10-year Treasury Note receive the coupon rate from the Treasury. After ten years, the 10-year Treasury Note matures and the owner is paid the face value. The percentage of that total payment that exceeds the 10-year Treasury Note’s market price, annualized, is called the yield. When the current market price for the 10-year Treasury note rises, the yield for the 10-year Treasury Note falls, and vise versa.
When the yield starts to increase, it is often a sign that the economy is getting better as investors are willing to put money back into the United States. We are at a very unusual time in that the housing market remains in terrible condition and yields are rising. The President and Federal Reserve Chairman were hoping to help the housing market by creating very low mortgage rates that would spark the interest of new home buyers. Well, it looks like that is not going to be the case as yields are going to pull mortgage rates back to reality.
It will be very interesting to see what comes out of this situation. Either the yield increasing is a prediction that the economy is going to get better and home prices will eventually increase due to the increase in investments and consumer spending or much worse will happen. If mortgage rates head higher, the economy does not get better and home prices continue to slide, we could see a VERY long recession. Every American has already felt the effects of the recession so far and it could get much worse.
Imagine home prices sliding even further and the amount of defaults continuing to rise. This could definitely happen if mortgage rates get to 6% or higher. The only reason there has been even remote interest in the real estate market over the last half year is because mortgage rates have been close to or under 5%. Unfortunately, most of the interest that has come from mortgage rates being so low is in the form of refinancing. What the housing market and economy needs is for NEW home buyers to come into the market and take some of the excess supply out.
New housing supply remains over 10 months which is well above the norm. To see a stabilization in home prices new housing supply needs to get under six or seven months which doesn’t look like it is going to happen any time in the near future; especially if mortgage rates are on the rise. To make matters even worse, the amount of defaults is continuing to rise as we are starting to see the second wave of resets. Expect to see many Alt-A and other exotic mortgages reset in the next year which will be a HUGE problem for many home owners.
Overall, it looks like an increase in mortgage rates is inevitable. This does not mean that you will not be able to get a very low mortgage rate. As many of my friends like to tell me, if I could get that low of a mortgage rate when I was your age, I would have been estatic. We have to realize that even if mortgage rates do add a half of a percentage point, they will still be at some of the lowest levels in the history of the housing market. If you have been debating getting a refinance, I would strongly urge you to do it now before mortgage rates follow the 10 year treasury yield higher.
In other economic news, it looks like the restaurant industry is started to see a light at the end of the tunnel. There is still contraction in the overall industry, but much less than over the past year. Since the beginning of the year, that contraction is slowly working its way towards expansion. Sadly, I think part of this is the psychology that things are getting better because the stock market has increased and our President keeps telling us he thinks the economy is showing glimmers of hope. It will be interesting to see if there is heavier contraction after mortgage rates start rising again coupled with the decline in home values.
- Interest Rate Predictions Indicate Higher Mortgage Rate
- Mortgage Rate Trends Reverse Quickly; Rates Headed Higher
- Low Mortgage Rates Not Helping as Home Prices Slide In March
Tags: daily mortgage rates > Daily Mortgage Rates News > mortgage news > mortgage rates
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May 30th, 2009 @ 1:34 pm
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