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Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the 10-year Treasury and mortgage rates.
- 10-year Treasury yields are at exceptionally low rates, at 2.95 percent this morning. Regarding the $14 trillion national debt, low rates will help on interest costs. For example, if all government borrowing rates were to rise by one percentage point, then the interest cost would be bumped up by an additional $140 billion. Politicians like to make to make annual figures into 10-years figures, so the interest cost would rise by $1.4 trillion over 10 years.
- Debt ceiling debates, bickering, and discussion will take place over the summer. Washington policy wonks will probably announce something like cuts to the tune of $1 trillion in spending as part of the compromise. However, if interest rates were to rise, then all those big cuts would be completely eaten up by the need to pay higher interest payments.
- From the real estate point of view, the 10-year Treasury yield is monitored because the 30-year mortgage rates are priced from it. The 30-year mortgage rate is the 10-year Treasury yield plus about 2 percentage points. So if the government borrows at 3 percent then the mortgage rate will be around 5 percent.
- Expect macroeconomic conditions to apply upward pressure on rates in the upcoming months. The budget deficit is high. Inflation is picking up. The Federal Reserve will stop buying government bonds at the end of the month with the freshly printed money. The 30-year mortgage rate will likely reach 6 percent by this time next year.
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