What The Collapse Of The 10 Year Note And What It Means To You

With the violent drop of the 10 year note in the past two days (from 2.28 percent to 1.95 percent), traders can expect changes in the mortgage rates offered by the major banks as well. Wall Street analysts that predicted rates of 3.5 percent and 4 percent 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 percent for the most qualified home owners and 4 percent seeking a no cost loan. Unfortunately, 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. 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 percent 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 that 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.