Collapse of the 10 Year Note Yield and What it Means to You

Logan Mohtashami, Benzinga Contributor

With the violent drop of the 10 year note yield in the past two days, from 2.28%  to 1.95% , we can expect changes in the mortgage rates offered by the major banks as well. Wall Street “analysts” who predicted the 10 year yield of 3.5% and 4% for the 10 year note in 2014 should hang their heads in shame as making the worst 10 year note calls on record.

 

On Main Street, where the rest of us live, we see refinance rates as low as 3.875% for the most qualified home owners and 4% seeking a no cost loan.

 

Unfortunately, I don’t expect these lower rates to have much of an effect on housing demand. Despite rising inventory and lower rates (typical drivers of housing demand) year over year demand in 2014 has been negative.  The current low rates will not change that because it is not mortgage rates that are keeping buyers out of the market.  Our fellow Americans simply don’t make enough money to own the debt of a home, and until incomes go up or housing prices dramatically decline, that hard truth will continue to suppress housing demand.

 

Right now, people who bought their homes in late 2013 and early 2014  may be good candidates to refinance their mortgages. Having said that, refinance activity is down 72% from the peak in May of 2013 because many  already have lower rates and this recent move down won’t mean much to them.  Therefore, people who can take advantage of these lower rates will only be a small pool of home owners. For those with the sufficient equity to eliminate their private mortgage insurance due to recent home prices gains, could benefit by refinancing.  Others may benefit by combining their first and second loans into one at a new loan as well. For the rest of us, however, we should not expect lower rates to boost housing and/or the economy as a whole. We simply don’t have enough qualified home buyers in America!

Chart from Professor Anthony Sanders
http://confoundedinterest.wordpress.com/2014/09/17/got-rent-homebuilder-confidence-rises-to-9-year-high-despite-stagnant-wages-and-declining-labor-force-participation/

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Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com