Economist's Commentary: June 16, 2008

Quick Take on the Economy: June 16, 2008

By Lawrence Yun, NAR Chief Economist

The yield on 10-year notes has been stable so far today after having risen markedly in the past week. The yield is at 4.2 percent. Just three months ago, it was trading at 3.4 percent.
The rise in the 10-year Treasury yield inevitably means a rise in 30-year mortgage rates. Mortgages are priced off the 10-year benchmark rate by adding a margin.
Rates are rising because inflation remains uncomfortably high. At the current inflation rate, the real inflation-adjusted interest rate is essentially zero. Lenders want to tack on a premium to compensate for their loss in purchasing power due to inflation.

Homebuilders' sentiment fell a notch to 18 in May from 19 in the month prior, according to survey data released by the National Association of Homebuilders (NAHB).
The latest figure matches the all-time low hit in December of last year.
This index has provided good leading information about upcoming housing starts. Therefore, today's data hints at further contraction in new home construction.
Builders will continue to cut back new home construction. However, this contraction is a needed adjustment to wean out inventory.

30-year fixed mortgage rates are higher than a few months ago and will not return to lows similar to those prior in the year. The rates will more likely rise by the year's end.
There will be less inventory of newly constructed homes.

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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