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

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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

About Author

Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.


  1. 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 =-.

  2. 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.

  3. Brian Dickerson on

    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,

  4. 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.

  5. James Blakeley on

    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.

    • 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.

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