Economist's Commentary: April 18, 2008
Quick Take on the Economy: April 18, 2008
By Lawrence Yun, Chief Economist
U.S. Treasury Yields
- The yield on the 10-year U.S. Treasury Note, which is the benchmark rate for pricing 30-year fixed rate mortgages, has risen sizably this week.
- It is trading, as of this writing this morning, at 3.80 percent. It had been 3.45 percent as recently as Monday of this week and 3.35 percent for a few days one month ago.
- The rise in the yield and subsequently in mortgage rates is being driven by better prospects within the economy. A change in investors' view from a severe to a mild recession or from a mild to no recession has pushed asset reallocation from bonds to stocks and raised inflationary outlook.
- Though the weekly mortgage rate reading by Freddie Mac was unchanged, taking out a mortgage today has become more expensive.
- Because of a 35 basis point rise in 10-yield Treasury, a similar rise in mortgage rates would raise monthly payments on a $300,000 loan by $70 per month.
What Does it Mean for REALTORS® and Consumers?
- A cut in interest rates by the Federal Reserve does not mean a fall in 30-year fixed rate mortgages.
- The Fed could make another rate cut at the end of the month - but again, it is no guarantee of a lower mortgage rate. Mortgage rates could even rise, if investors fear higher inflationary pressures.
- Though some may not have caught the rock-bottom rates, mortgage rates are still very low by historical standards. Rates are likely to be higher by the year end as economic stimulus begins to kick-in, in the second half. Mortgage rates will most certainly be even higher in 2009.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
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