Bonds including treasury bonds, inflation index bonds, corporate bonds and mortgage bonds are debt instruments with treasury bonds being traded most in terms of volumes.
When treasury bond yield moves up, mortgage bonds have to follow to keep up the competitiveness to get money from investors.
Now 30 year bench mark mortgage bonds yield approach 6.6%, the burden on borrowers and housing industry is heavy. It also adds extra weight to all industries for corporations will need to sell their bonds cheaper to attract bond buyers also, thus increase their bond yield and interest payment. That directly impacts corporation's profitability, and future stock prices.
I wont be surprised to see bench market bond yield cross 7%, as it should be. What I really surprised in last couple of years is to see how FED manipulates inflation numbers to artificially keep yields low and to extend the life in the housing market.
What does that mean to investors in this post? One thing for sure, one will have difficulties to leverage more to buy into the RE. There will be less demand to the housing market. The cash flow will be a lot more negative than before. For those who have ARM, the extra burden of payment increases will mean less comfort life, less savings, more worry for the job security.
But wait, one can argue, this drives down the housing price so to keep the mortgage payments relatively constant. Yes! that will be the likely scenario. What not figured in this arguments is high interest damps consumer and 投机倒把者 (so called investors) confidence. Who wants to invest in a market one can not see the light in the end of tunnel?
The average home owner would say, who cares! I live in my house and I am not going to sell. But wouldn't he feel sad if his neighbor(s) goes into bankruptcy that his million dollar house suddenly lost 10%, 20% or more value? His paper equity evaporates quickly. His millionair dream could disappear in a short several years.
Well, we can stay put to see the housing price climbing back. Then just ask, is today's 1 buck equals same 1 buck 5 years later?
Is housing still a best investment? Maybe, maybe not. Maybe for those bought in the start of up cycle. Maybe not for those bought at the peak.
