Rates edge up as 10 Year Treasury reaches 3% level; Higher home prices dictate a move to “emerging markets”
In the absence of major economic news, this week markets were focused on corporate earnings and rising rates. The 10 year Treasury yield finally breached the 3% mark, long considered a level that could lead to another leg up in rates. Inflation concerns coupled with Fed policy appear to explain the upward move in yields, as US economic indicators continue to be strong.
Stories in the background that could change this scenario include the potential impact of a trade war and bond yields in Europe that is still much higher than ours.
As rates approach 5% (the MBA reported this week that the average nationwide rate for a 30 year fixed loan was 4.73% with .5 points cost, a bit higher than what we’re seeing, but in the same ballpark. Apart from the issue of affordability (one qualifies for a lot less at 5% than at the 3.5% level we were seeing less than a year ago), there is the psychological effect on buyers of seeing a level that some of us still consider great from a historic perspective, but which younger prospective homebuyers have never seen.
As reported in previous Marketwatch issues, the remedy in years past was to go with ARM products at lower rates, but these rates do not offer the attractive discount that we have seen before. The answer for many is to look in less-expensive markets, sometimes outside of the immediate Bay Area and sometimes in “emerging markets” in Oakland, Berkeley, Richmond, etc. Thankfully this trend is so robust that affordable housing in improving neighborhoods is still a possibility.