Mortgage interest rates continue to worsen. With rates now at seven year highs, we are clearly in an unfamiliar market; at least one we haven’t experienced in a long time. In truth, it is healthy for the market to experience higher interest rates. A prolonged market on either extreme is not good. As long as the higher rates are a reflection of a strong economy, this will provide many benefits over the long term. For one, it will allow elderly investors to shift more of their portfolio into the stability offered through the bond market vs maintaining more than they should in risky assets such as stocks. Overtime the shift out of stocks and into bonds will help stabilize the interest rate environment and help replace some of the flow lost from fewer Federal Reserve purchases with private money.
The 10 Year Treasury Note yield is currently at 3.10%. Unfortunately, the next significant ceiling is all the way at 3.35%, which was would be a significant increase from current levels. With this much room on the upside for rates to increase, we could be in for more trouble in the longer term. Hopefully, we will see bonds stabilize near current levels and begin to improve. That would be the saving grace for those looking to purchase a home this summer.
One good thing associated with increasing interest rates is the number of home buyers that quickly step into the market to capture a rate before it gets too high. This motivation has brought many to the closing table as they rush to secure a home and a rate. We should see this continue for a few months, which will help keep our housing market strong in the near term.
With bonds in a steep downward trading channel, we will maintain our locking bias.