Interest Rate Forecast Greatly Changed by Treasury Yield

The current interest rate forecast is very cloudy because of the treasury yield.  Since the beginning of 2009, the 10 year treasury rate has increased from 2% to almost 4%.  There is little doubt that the 2% was way too low, but should we really be seeing a quick double in less than half a year.  With the yield going up so quickly, it was only time before mortgage rates followed.  For the first five months of 2009, interest rates trended lower especially on home loans.  Many media outlets were actually quoted as saying that mortgage rates were at an all time low.  We will never know if that is true as Freddie Mac did not start collecting the data until 1971.

With that being said, it is highly unlikely that we will be seeing anything close to an all time low again.  The treasury yield has hit a bit of resistance at 4% but the overall, short term trend, is definitely up.  If the 4% barrier is broken and the yield makes an assault on 5% that is very bad news for rates on home loans.  Mortgage rates will definitely head higher if this is the case and the housing market could continue to crumble even more.

Hopefully we will see the 10 year treasury rate stabilize around 4% before any strong move in either direction.  The volatile move in rates is scaring off many first time home buyers as well as experience home owners.  They do not want to go through the mortgage application process to find out that their rate is .75% higher than the quote they got two weeks earlier.