Friday, September 6, 2013

Interest Rates Rising - 10 Year Treasury Hit 2.99%

Interest rates for the 10 year Treasury reached 2.99% yesterday and are now down to about 2.90%.  As I have written about earlier, rising rates crush economic activity.  For example, in housing mortgage rates have increased in parallel with the 10 year Treasury.  Since May national rates for a 30 year mortgage have increased from 3.40% to 4.56%.

Rate Increase Makes Homes 15% Less Affordable
Annual payments for a $200,000 30 year mortgage at 3.40% are about $10,700.  If the rate is 4.56%, the annual payment increases by 15% to $12,400.  Another way to look at it is that an annual payment of $10,700 pays for a $175,000 mortgage at 4.56% instead of a $200,000 mortgage at 3.40%.  Unless you are paying all cash, home prices just increased about 15%.

And, here is a quick review of how rising rates impact corporate earnings:

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