Rising interest rates do matter

Today (10/4/18) the stock market took a big hit and most analysts said it was because the yield on the 10yr treasury notes was on the rise. Yields almost hit 3.2%. The 10yr is seen as a reliable guide for a broad measure of interest rates, and in particular, rates that effect mortgage lending.

Two years ago the 10yr yielded 1.727% and the low was reached in July of 2016 at 1.321%. A year ago the yield was 2.368%. So, interest rates have been rising as the Federal Reserve has been gradually raising rates in an attempt to “cool” an economy that is growing at over 4% on an annual basis. When the economy was perceived to be weak, the Feds kept rates low, and some argued too low. Now, rates are moving in the opposite direction.

As rates rise, the cost of borrowing goes up, making mortgages less affordable. And, rates on adjustable mortgages also rise, as they are pegged to various interest rate indexes.

While this effects the real estate market, this trend may also effect the rental market. If some people are priced out of the mortgage market, they might decide to rent. So, this environment might put additional pressure on the rental market and cause rents to rise. It’s still about supply and demand.