Mortgage Rates

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 discusses mortgage rates.

• Mortgage rates are set to move higher.  The 10-year Treasury borrowing rate has been mostly steady but the 30-year Treasury borrowing rate has already started to move up.  The 30-year mortgage rate will soon follow the upward trend.
• The long-term mortgage rate generally gets its cue from the 10-year Treasury, because most of the mortgages get retired within 10 years from people moving to buy a new home or because of refinancing.  But the rise in the 30-year government borrowing rate to 3.2 percent from the low of 2.8 percent a few months ago is hinting that the bond investors are beginning to pay more attention to potential inflationary pressure and less to another potential economic slowdown.
• Other factors pushing up rates are that America will need to borrow but China may be unwilling to lend.  America’s huge budget deficit of $1.2 trillion in the past 12 months assures continued borrowing and lots of it – even if it requires offering higher interest rates.  Fortunately for now, America is able to borrow even as it offers low interest rates.  China, on the other hand, will likely open up its capital market, albeit at a slow speed.  China was buying up U.S. Treasuries in large quantities because the government in essence used the huge savings of Chinese citizens make this happen.  But the opening of the capital market will mean permitting Chinese citizens to do their own investing (rather than forcing people to save at government banks) and many will not want to take on U.S. debt that pays very low interest rates.
• The Blue Chip Consensus forecast on the 10-year U.S. Treasury is for 2.4 percent by autumn and 2.7 percent by this time next year from the current 2.0 percent.  That will mean that the mortgage rate on a 30-year loan will rise from current 4.0 percent to about 4.7 percent by this time next year.