I had an interesting question from one of my subscribers last night. Quick summary:
“Won’t the lower yields in the bond market lower the overall mortgage rates and set the housing market on fire once again?” -J.V
Hell NO. Here is why.
If you haven’t noticed, the 10-Year Note has declined from around 3% at the beginning of the year to 2.35% today, going as low as 2% just a few weeks ago. This bond market action has, more or less, caught 95% of investors out there with their pants down. Not us.
As I suggested before, the reason the rates are declining is A. The bond market needs to set a secondary bottom and close the gaps at around 1.5-1.6%(It will do so over the next 2-3 years) and B. A more intelligent bond market is smelling out a severe US Recession over the next 2 years.
Long story short, here is why this WILL NOT have a net positive impact on housing.
- Even though the 10-Year Note is declining, mortgage rates are not. And even if they do, because the interest rates are essentially at ZERO, any future decline here will have very little impact on the overall housing market.
- The overall real estate market has already completed its “Dead Cat Bounce” and is currently in the process of a rollover into a massive stage 3 decline over the next few years. While lower interest rates might slow it down, its current overvaluation/speculation levels ensure its ultimate demise.
In conclusion, don’t expect anything short of 100 Million Rich Chinese landing in America and looking for a house to stop the upcoming real estate decline.
