Why Interest Rates Will Rise in 2010

Here is a really good article on why interest rates, including mortgage interest rates will begin rising next year.

Essentially, the demand for US treasury bonds is drastically dropping. The two primary sources of demand for Treasury Bonds have been China, and artificial purchases by the federal government with the specific purpose to keep interest rates down.

This demand will stop soon, and the only way to get it back will be to for the fed to raise interest rates, which will in turn raise all interest rates including mortgages.

The only way to increase demand will be to raise interest rates, which will then spread to all layers of the economy. All interest rates will rise, including mortgages.

There really is no escape from this conclusion. And this isn’t just about 2010–it’s about 2010 through 2035, as bond rate cycles tend to run between 18 and 26 years. Just as interest rates fell for 26 years, now they will rise for a generation or so.

Short-term Treasury yields fell to near-zero in the global financial meltdown, but the basic idea of this chart remains valid: interest rates fell as Chinese ownership of U.S. debt skyrocketed. Once that ownership starts falling (along with Fed purchases), interest rates have nowhere to go but up for decades to come.

Read The Full Details here:

Why Interest Rates Will Rise in 2010 | HousingStorm.com Honest Local Real Estate.

What this means for the future home buyer:

If you are going to buy real estate with financing, from a payment status you will be better now. Housing will be more affordable because your mortgage payment will be less.

If you are going to be buying real estate by paying cash. You might be better off waiting to buy later. Real Estate values will likely continue to decline as interest rates go up.  People won’t be able to afford the more expensive homes once interest rate get to a historically normal, or even high rate.

One Response to “Why Interest Rates Will Rise in 2010”

  1. I think that the result of increasing interest rates or mortgage rates will be increase of sales in the first quarter of 2010. People that plan to take mortgage to finance their new house will exploit the current situation of low rates. After that, I suppose there will be slowdown. And as is mentioned before those who are going to pay cash will wait. But the number of cash payers is I think much lower and lower demand means lower Real Estate values.

    Jay Banks

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