As the 10-year treasury goes, so do mortgages. And as the 10-treasury yield has been pushing higher, so have mortgage rates.
The average U.S. 30-year fixed mortgage rate was at 6.12 percent Thursday, up from 5.98 percent a week ago, according to Bankrate.com. The average 15-year fixed mortgage was at 5.82 percent, up from 5.69 percent last week.
And while a one week increase from 5.98 to 6.12 percent in long-term mortgage rates seems nominal (and rates remain near historic lows), keep in mind that a buyer that could only afford a $600,000 mortgage last week can only afford $591,000 now (1.5% less).
∙ 10 – Year Treasury Yield Passes 5 Percent [New York Times]
But, but, my real estate agent assured me I could refinance next year when my teaser rate expired.
I’ve been tracking rates and seen the 10/1 interest only go from 6.0% two months ago to 6.625% today.
$6k/month afforded me a $1.2M loan two months ago, today $6k/month only affords me $1.087M. Thats $113k less, or a 9.4% drop in “affordability” in two months.
I’ve been actively house hunting in SF for the past four months and I’d like to hear comments on how this increase in interest rates is likely to affect SF housing prices, taking into account that SF is “special”.
Look forward to your input.
Roser,
Your “situation” illustrates what I pointed out recently. While no one can predict with 100% certainty the direction of interest rates, a relatively small increase in rates is a large increase in monthly mortgage payment. The risk in buying SF real estate is that so many are using “equity” from their existing home to trade up. (Many do not qualify to buy without the equity.) If any of the equity disappears, the whole upward sppiral begins to unravel. The next generation of buyers lack equity so they will be dependent on contributions from family members or, shudder, income.
SF real estate may continue to appreciate, but at the recent rate of appreciation, soon only existing San Franciscans with equity will be able to afford it. That’s a risk I personally avoid.
FWI, Bill Gross the BIG Pimco bond guru was on CNBC today, saying, after 25 years of being a bull, he’s bearish on bonds. (That means interest rates are going higher)
Best of luck in your search but be careful.
Cary
Nothing new here, folks. Rates have been too low for too long, resulting in value bubbles or balloons in several markets (among them real estate). Aside from income and equity, don’t forget the other variable in the affordability equation is the price. If the first two are insufficient, the market ceases to function and prices need to come down to balance.
A ton of major economists have been speaking out about this for years now. Another senior PIMCO guy sold his home last year and decided to rent. Why? Because they saw the writing on the wall, that the party was coming to an end and the hangover would begin soon.
http://www.pimco.com/LeftNav/Global+Markets/Global+Credit+Perspectives/2007/U.S.+Credit+Perspectives-+5-2007.htm
Catching up on my SocketSite reading from the Outer Banks of North Carolina.
My crystal ball (not better than any other) says that rates are going to keep going up because U.S. Treasuries and other government debt does not necessarily hold the same appeal it once did for foreign investors. Keep in mind that foreign central banks buy right around 50% of our U.S. Treasury debt at each auction …. if they begin to prefer Euro or Yen denominated bonds, the prices will go lower (and rates higher). I’d say Bill Gross’s prediction of 7% for 10-year Treasuries is right on, but anybody’s guess is as good as mine. 🙂