The bond market has definitely rallied as of late. Mortgage rates have come down also, although it has not stemmed the downward trend in RE as of yet. I came across this quote concerning bonds and the recent tame inflation reports on yahoo that I found interesting;
“The market has been given a tame backbone boost by the tame inflation numbers, while the in-line initial jobless claims are little cause for drama. “The inflation numbers are a joke, they’re fudged, we all know that,” says a long time dealer, adding “we will all play along until it blows up, which it will,” but he points out, until the dollar starts “into a free fall, we won’t ” worry too much about the situation.”
IMO the current downtrend in RE is beyond interest rates at this point, this thing is going to correct regardless. But as that bond trader pointed out this inflation/dollar/interest rate story is on a very slippery slope right now. If the dollar begins to tank and there is a flight out of US treasuries that would be the perfect storm for the housing market at this point. It seems as though the bond traders know this is going to happen its just a matter of when.
Agreed, except for one point. It’s not “if the dollar begins to tank”, it’s “when the dollar resumes its previous tanking”. If I recall correctly, we’re not too far off the all-time low of the dollar index, and once it goes through that low, look out below!
Yes, interest rates on the long end of the yield curve have come down a bit over the last couple of weeks. There are numerous factors contributing to the drop in yields including a shift to safe quality assets in the face of poor economic data (job growth, GDP, inflation, etc).
However, I don’t thing the long end of the yield curve will have an impact on SoCal housing depreciation. The SoCal market has relied extensively on the short end of the yield curve through the use of ARMs. The yield on the 10 year hasn’t moved nearly as much as the short end – driven by the FOMC’s two year tightening campaign. Look at some historical data for US Treasury rates and you’ll find that in the years following 1989, the 10 year actually dropped. But that didn’t save SoCal.
The long end of the curve will probably not move dramatically in any direction. Japan reported lower inflation data and that could have an impact on the BOJ not raising interest rates – therefore prolonging the Japanese Carry Trade and maintaining demand for the Long Treasury.
Investor psychology has already been impacted, the downturn is underway and interest rates will not help. Remember, Japan dropped rates to zero and that couldn’t stop their real estate troubles….
.
