HUGE jump in US Treasury Bond interest rates over the pas 20 months or so.
In fact, as of today, 5/14/2018, the 10 Year is at its highest since 2011!
Now, lots of people will conclude things about the investing market, how this increase affects them. And there is a lot to be said about how this affects your portfolio.
BUT, what gets overlooked during this times of increasing interest rates is the affect on the mortgage/real estate market as well.
Think about it like this:
Couple want to buy a home. They have a monthly budget of $850 for that home. When interest rates were what they were in July 2016 they could have afforded a $250k home (just using the 10 year rate as our proxy for the interest rate they paid on their mortgage.)
Now, though, with the 10 year at 3.05%, that same $850 could only buy a $200k house!
So, what happens to the couple who bought a house in July 2016 for $250k fully leveraged, i.e., no equity, and need to sell it today?
Their potential buyer can’t afford that price anymore. Thus the seller is stuck. What if they need to move for a new job?
Well, hopefully, there will be other buyers out there. But what if there is not?
They will then have to reduce their price. But they can’t because they have no equity!
You see where this goes right? The seller who is trying to sell so he/she can take a new job, is stuck. They can’t get out of the home!
Moral of the story, watch the 10 Year Treasury Bond, everything is contingent on this.
Second point, watch leverage and avoid it like the plague.
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