Treasury Over 5%. What's Going On, and How Does It Affect Me?

The question I get first, every time, is the same one. So here it is, with the answer I actually give. My opinion, not a prediction, and not a quote.

“Sean, the 10-Year just went over 5%. What's going on, and how does it affect me?”

Here is what's going on. This morning CNBC had the 10-Year Treasury around 5.23%. The futures market has a Fed hike at about 24% for October and 82% for December. Mortgage rates follow the bond market, so yes, rates are a little higher.

Here is what I tell people about how it affects them.In my opinion, buying can still be a smart move in this economy for the right buyer, and this is why I think so. Everyone's situation is different, so treat this as a way of thinking, not advice for your file.

One: the tax side. If you are a W-2 employee, you don't have many ways to lower your tax bill, and the interest on a mortgage can be one of the better ones available, if you itemize. I'm not a tax advisor and this is not tax advice, so check with yours. It is worth asking.

Two: less competition. When rates go up, a lot of buyers step back. In my experience, fewer buyers means prices tend to stabilize, and sometimes slide a little. For some buyers, that can be an opening. You may be able to lock in a lower price than you would have paid when everybody was in the game. No one can promise that, and it varies a lot by town and by home.

Three: then we watch the market. I expect rates will come back down at some point, and nobody can say when. If they do, it may be worth looking at refinancing into a lower rate and a lower monthly carrying cost on the same property. A refinance is never promised, and it has to make sense after the costs, but it is the plan I would want to have.

Four: when rates come down, prices tend to come back up. Real estate is an investment, and you buy it for the appreciation. Buy low, sell high. If you buy when the market has pushed prices down, you may be the one holding the property if the market comes back. Prices can also stay flat or fall, and no one can promise appreciation.

So my honest answer, for a buyer who plans to stay put and can comfortably afford the payment, is to be ready to hold for a few years. Buy the home, wait for rates to come down, look at refinancing when they do, and give the market time to work in your favor. No one can promise that it will. It is the opposite of what the headlines are telling you to do, and it is why I like it.

“Why does everybody act like the jobs report decides everything?”

Because of an old idea called the Phillips Curve. When almost everyone who wants a job has one, employers pay more to keep people. Paychecks go up, prices go up. The Fed's main tool for cooling prices is cooling the hiring a little, and a rate hike is how it does that.

So a strong jobs number is good for workers and bad for borrowers, because it gives the Fed a reason to keep going. A weak number does the opposite. That is why rates jump around on a day when the economy looks fine. A caveat: economists argue about how well the Phillips Curve has worked since the pandemic. I treat it as the reason they watch jobs, not a forecast of what they will do.

“The Fed officials don't even agree. Williams says no rush, Jefferson says it may take time, Kashkari has no strong view.”

Fed watcher Mark Spindel put it well: “Warsh didn't end forward guidance, he simply decentralized it. Members are taking full advantage and pushing their own agendas as they see fit.” Nobody is steering, so every speech moves the market. My opinion: don't try to outguess a committee that can't outguess itself. Build the plan above so you don't need to.

“Isn't that just trying to time the market?”

No, and the difference matters. Timing is waiting for the perfect day. This is buying a home you can afford at today's rate, at a price that has come off, and holding it for the long run. For investors, the same idea applies: the market pushing prices down is when you find the diamond in the rough, a motivated seller or a property priced down for some other reason. One rule I'd keep: if a deal only works when rates fall, it isn't a deal, it's a bet.

“And if I already own, or I'm selling?”

If you already own at a rate lower than today's, I'd usually leave it alone. If you are in an adjustable loan, find out when it adjusts and what it becomes at today's numbers. If you're selling, your buyer's monthly payment is your price ceiling, so price to today's market, and ask about concessions or a rate buydown, which can lower their payment while protecting your headline price. Many owners are sitting on low rates and won't sell, which keeps inventory thin in a lot of towns, so look at your street, not the national headline.

Related: Rates Hit 6.87%. Why Smart Money Is Buying Anyway · Why Locking Isn't a Prediction · I Called 4.67%