Long Term Chart of Mortgage Rates vs the 10-Year Treasury
Change in Mortgage Rates vs Change in 10-Year Treasury Yield
Change Since August 6, 2020
- The 30-year mortgage rate is down 9 basis points
- The 10-year mortgage rate is down 23 basis points
- The 10-year US Treasury yield is up 72 basis points
The current divergence is more than a bit unusual.
What’s It Mean?
- Realistically, mortgage rates ought to be 75 to 100 basis points higher than they are.
- The Fed via QE asset purchases is doing a far better job manipulating mortgage yields lower than it has done controlling yields on long-term treasuries.
On February 8, the Fed noted Monetary Policy Will Stay Accommodative For a Very Long Time. I commented “Like Forever”.
My question on February 14 still stands: How Long Before the Fed Tries to Manipulate Long-Term Rates Lower?
Mish
The Fed has been buying $40B/mo of GSE debt; that’s one-half of the level that it’s been buying for the US legislature/administration in treasury purchases. No wonder mortgage rates haven’t moved. The split is incredible.
You think mortgage rates need to increase?
If the FED is buying 30 year and neutral on the 10 year; then it is trying to stimulate the real estate market while giving banks some room to increase their spreads beween deposits and consumer credit.
I just don’t see how 10 years or mortgage rates can go higher? Maybe a little bit for a short time but any sustained, upward move would DESTROY the economy on life support now.
“Mortgage rates and the 10-year treasury yield have gone opposite ways. This is not normal.”
There is nothing that is normal anymore. All one has to do is look at the FED’s balance sheet.
Meanwhile, an auction for $60 billion two year treasury notes just completed with a yield of 0.119%. We’re pretty much at zero percent. The continuing decline in shorter term notes is a better indicator of what’s happening than the long bond.
Because…..”Markets”.
LOL….
spreads are wide between the 10 year and the mortgage rate. Originators don’t need to raise mortgage rates
You need to consider the short term treasury bills market which has falling yields. Jeff Snider points out that there are several examples where falling yields in treasuries were a leading indicator for a collapse in long bond yields.
It’s possible that mortgage rates are following the same trends driving treasuries and are actually indicating where things are going more than the other way around.
If the 10 year stays elevated, mortgage rates will likely have to follow. Unless bond investors become a lot less risk averse than they’ve been historically.
I think this means I need to borrow some money while it’s cheap.
Yeah, I’m buying as many houses as I can, leveraged as high as I can go.
I’m getting 18% cash on cash returns, not including any debt repayment nor any future property increases.
This is awesome!
Day-um. Good on you, my friend.
I believe in keeping leverage modest, but frankly I have a hard time seeing how you could go very wrong in my local market. I’d like to buy one or two more….and I should refi the existing stuff. I keep saying that……just laziness keeping me from it now..I should do it right away.
I’m in the middle of my friend Dan’s 2nd book on RE single family…..It makes me want to figure out a way to teach other people what I’m learning. There is so much to it. Not trying to steal his thunder, but most people really don’t know how it all works.
These are my first houses.
The one I am closing on Friday here’s the numbers:
Purchase price:100,000.
Down payment plus closing costs: 29,000
Rent: 1050 (I already have a renter lined up)
PITA: 500
Maintenance: 100-Note, there are zero maintenance issues with this home, it’s very well taken care of but I’m putting 100 a month in an acccount for maintenance needs in the future.)
Total net cash on cash is 450 a month. That’s an 18.6 cash on cash return. I’m in NC so growth here is positively exploding. I’m a little nervous about a housing bubble but if something goes south, I’m at least protected a little by living in a state where people are fleeing to.
Besides, the rent more than covers everything.
The biggest problem is finding houses to buy. There’s literally nothing on the market and a home rarely stays on the market for even a day. I’m not overpaying and I’m sticking with my 1% of rent to purchase price ratio.
Just need 20 more of these. lol
It really is hard to beat RE for investment returns, especially if you self manage like I do.
In 5 years the property above will earn enough to buy a similar property. And that’s not even including the debt repayment, property value increase if any, or any rent increases, which seems very likely in a higher inflation environment like I believe we are facing.
If you self manage it’s possible and even probable that a person can achieve north of 25% returns including rent, value increase and debt repayment. That’s on class B properties, not slum properties.
I’m not aware of a higher rate of return anywhere that provides the stability and safety of real estate.
I am bemoaning my lack of capital right now. I want to buy 20 but only have enough to buy 4.
Where I’ve seen people go wrong is by getting over-leveraged and then not being able to make debt service when the rental market turns brutal. Because RE does have boom and bust cycles…… that happens, unfortunately. Leverage cuts both ways. Don’t ask me how I learned that.
I started with one duplex nearly 30 years ago….and in 2009 we sold it and bought a few more single family homes….and in 2015 a couple more.
I only manage one house and about fifty boat storage units…The rest are with a professional management company. I don’t have the time or energy I once had. I think most people are better off with decent professional management if you can find it. There are several reasons I say that.
If I buy something I need to sell something first to raise capital myself….not sure I’m going to do it..but it makes financial sense. But my partner is is risk averse….right now our leverage is quite low. And we’re getting older.
You should read Dan’s books. Or hear him speak sometime, if you can. I recommend him above all others on the subject of single family RE…and on explaining how RE investments held with mortgages are huge beneficiaries of inflation. Inflation is a wealth multiplier for home-owners and single family RE investors.
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Link didn’t embed….if you have interest just look for him on Amazon. Daniel Amerman. Probably my best financial mentor, and I have had many to whom I have to give credit.
I agree. Inflation if the debt holders friend. There are no guarantees, but if one thinks higher inflation is coming, borrow as much as you can that you don’t have to pay back yourself.
I’ll take a peak at Daniel’s stuff, thanks for the tip.
What is the name of the book again?
Book One: The Homeowner Wealth Formula.
Book Two: The Eight Levels Of Homeowner Wealth Multiplication
It’s all one body of work, really, and I recommend starting with the first book. I think there will be a 3rd book that develops some of the ideas a little more, maybe more aimed at the investment side.
It could be either a) investors are starting to consider MBS the equivalent of a Treasury Bond since both are backed by the US government or b) the Fed is buying MBS in order to keep the rates low to keep the housing market up.
MBS are backed by the GSE …. thus the FED. Probably a very safe investment. You get the good interest rate and government backing.