Follow Us on Social Media

email icon rss icon icon google plus icon twitter icon facebook icon

How 10 Year Treasuries Will Affect Real Estate Markets, Investors, & the Economy

by Peter Giardini on January 6, 2010 · 12 comments


I was listening to a financial news report on the radio the other day and picked up on someone (regrettably I did  not get their name) who was mentioning that the Treasury was having a difficult time selling bonds to cover Government operations.  The implication being that no one wanted the U.S. debt at the rates being offered and in this case the Treasury purchased the bonds.  I believe that is what is affectionately referred to “monetizing” our debt.

I decided to take a look around and see what might be happening in the bond market, because… and pay close attention here… the 10 year Treasury bond yield is what drives conventional mortgage rates.  Typically, mortgage rates are 2 to 2.5 percentage points higher then the 10 year Treasury bond yield.  For instance, the current yield is 3.77 and 30 year fixed mortgages are at about 5.14%

 As I was searching I found this chart (below) that predicts that in July of this year the 10 year bond rate will be around 4.05%. 

Not bad all things being considered, especially the impact of the Government either buying its own debt…(don’t you wish you could do that?) or having to offer a higher yields to entice investors to buy our debt.

Continuing my search, I discovered this Bloomberg article discussing a Morgan Stanly analysis that predicts the 10 bond yield will make it to 5.5%.  Everything you need to know as a real estate investor is in the second paragraph.  Simply put… if the yield tops 5.5% fully expect that mortgage rates are heading higher and could attain an 8% or higher level.

If you are a home buyer… this is not good news! 

For those investors who cater to home buyers, this could be even worse news; but if you are a landlord this may be the best news to come along in a very long time. 

Let me explain.

It should be obvious that as mortgage interest rates increase more and more, individuals will be pushed out of the market because their income, or more specifically their Debt-to-Income Ratio, will not support the payments based on an 8% mortgage, all other things being equal.     

So, fewer and fewer home buyers will be able to afford to purchase a home.

This news is troubling for investors, because if home buyers can’t afford higher mortgage payments, properties are going to sit longer, tying up precious capital and negatively affecting profits, and…

For landlords the good news it that with fewer home buyers the demand for rentals will help stabilize current rental rates and decrease vacancies.

Will the 10 year yield hit 5.5% or more?  I can’t be certain.

But as an investor, it would be prudent to pay close attention to what our treasury is doing because your entire game plan can be disrupted, and you don’t want to be standing around scratching your head wondering what just happened.

Chart: Financial Forecast Center

Email *

{ 12 comments… read them below or add one }

G M January 6, 2010 at 1:36 pm

good article.. doesn’t surprise me one bit that most people will suffer under the current circumstances.


Peter Giardini January 6, 2010 at 7:11 pm

I guess we are only suprised if we view the world from a common sense perspective. More suprises to follow I am sure.


Craig Grella January 6, 2010 at 2:43 pm

Great article peter. Most people don’t look at this stuff, but it’s what makes good investors great.
There’s also a new credit default swap coming out this quarter which will play into what you are saying here in this article. If anyone wants to read it more about it, they can find it here:
.-= Craig Grella´s last blog ..Welcome to Cornerstone =-.


Peter Giardini January 6, 2010 at 7:10 pm

Why do I get this feeling of DejaVu all over again. Defaults clearly didn’t work the first time… why all of sudden does anyone think they will work better this time… especially since all of the experts have mostly left Wall Street.


Neil Uttamsingh January 6, 2010 at 7:29 pm

This goes to show that as real estate investors, we need to pay special attention to the future trend of interest rates. It is always a good idea to stress test your portfolio with higher interest rates in your calcluations today. That way, when rates go up, you will be prepared.

Nice perspective Peter!

.-= Neil Uttamsingh´s last blog ..3 tips to increase your confidence =-.


Peter Giardini January 6, 2010 at 10:02 pm

Nick… I like the notion of stress testing your portfolio… and those properties you intend to purchase.


Brian Dickerson January 6, 2010 at 8:15 pm

Great post Peter. I’ve been studying a different angle… real estate buying cycles. As a person goes through their life, they typically enter the cycle as a renter, then a starter home buyer, then move-up home buyer, and eventually through vacation homes and then retirement property.

If you average the years that people hit each stage, then compare to the birth indexes, you get a pretty cool graph of when buying populations will be hitting the ages where they are looking for particular types of property.

Why does it matter? The data suggests rentals as the best strategy for the near-term. Different analysis, same conclusion… makes you think it might be worth looking into…

Best Regards,


Peter Giardini January 6, 2010 at 10:04 pm

Brian…. I like the concept. I have to admit doing the research to reach your conclusions might test my ability to stay focused… your appoach will probably yield better overall and more consistent results.

So… when do you publish your results?


Brian Dickerson January 12, 2010 at 11:05 am

Peter, I hadn’t planned on it. But as a former corporate analyst, I may enjoy piles of data more than some…


Joe Russell January 9, 2010 at 2:12 pm

Great insight. My wife a realtor with remax stumbled upon this site and thought I would be interested. She is also working on her MBA in economics and wholly agrees with your assesstments. I will need to rss this site.


James Blakeley March 16, 2010 at 7:16 am

Good information. Thank you. These default swaps are dangerous if you are a tax payer. Wish the government would back all our real estate deals the way they backed AIG. Even better, wish I could get paid as consultant to undo any of my own mistakes. Oh wait, I do, just that I have to pay myself, which is not the same as paying the CEO’s of Wallstreet to correct the Swap mess.


Craig Grella March 16, 2010 at 1:06 pm

Yeah, this thing is so massive it’s really hard to wrap your hands around any one angle of it.
I think we’ll be studying this for years in terms of where we went wrong, what mix of govt. regulation worked and didn’t work, and how, if at all, things like this can be prevented in the future.


Leave a Comment

Comment Policy:

• Use your real name and only your name in the field designated for your name.
• No keywords allowed as anchor text in the name or comment fields.
• No signature links allowed under your comments
• You may use links in the body of your comment, but it must be relevant to the discussion at hand, and not merely be some promotional link.
• We will have NO reservations about deleting your content if we feel you are posting merely to get a link without adding value to our discussion.
If you add value, but still post keywords, we'll use your comment, but remove your link and keywords.
• For more information about acceptable practice, see our site rules.

Want your photo to appear next to your comments? Set up your Gravatar today.

Previous post:

Next post: