Solano Real Estate Scene: Benchmark 10-year note helps drive mortgage loan rates

The 10-year Treasury note is a loan you make to the U.S. federal government. The U.S. Department of the Treasury auctions the 10-year Treasury note. The reason it is described as the “benchmark 10-year note” is because it is the most popular U.S.-backed security and fixed-rate mortgages rise and fall with the yield of the 10-year note. Mortgage-backed 15-year and 30-year fixed-rate securities compete for investor dollars by offering a higher rate of return than the 10-year Treasury. Historically, 15- and 30-year mortgages are paid off or refinanced in less than 10 years so even though a mortgage is fixed for 15 or 30 years, people sell or refinance their home and rarely keep the same mortgage for 15 or 30 years. If you throw out the mortgages made between 2004 and 2008, the default rate on an owner-occupied mortgage has been minuscule over the past 75 years, making mortgage-backed securities one of the safest investments for banks, credit unions, pension plans, life insurance companies and even local, state and foreign governments to gain a rate of return 1.5 to 2 percent higher than the 10-year Treasury. We all know people who have lived in their homes for 40 or 50 years or even longer. They raised their kids there and plan to retire in the same house. But that’s not the average tenure. I remember going to a seminar for loan officers 25 or 30 years ago where the speaker talked about how the average life of a mortgage was only five years and people move every seven years. This has changed since the Wall Street-induced crash of 2008 and the Great Recession that followed because of the huge wealth and equity losses suffered by the middle and upper middle class. I don’t have the exact numbers, but people are staying longer and many already have a 3.875 percent mortgage rate or lower from refinancing during the last big REFI-mania in 2016, so they are not refinancing. Now that the equity in our homes has recovered and mortgage rates have dropped to a 3.5 percent APR for a 740-plus FICO score buyer, folks are seriously thinking about moving up or out. Seniors facing retirement are considering drastic moves to more affordable states and other younger people are finally moving up to their dream home and creating home inventory by selling their homes here in Solano County. The Treasury yield on the 10-year plummeted to 1.57 percent Aug. 14. In August 2014, the yield was 2.35 percent, 3.4 percent in August 2009, 4.15 percent in August 2004, 5.98 percent in August 1999, 7.2 percent in August 1994, 8.25 percent in August 1989, 12.80 percent in August 1984 and 9.25 percent in August 1979. For you young people, just imagine taking out a mortgage at 12 percent and getting 7 percent on a CD savings account.