Treasury yields soared in the last couple of weeks and are substantially higher than they were at the end of 2017. That’s likely to pass through to higher mortgage rates and hurt the housing market. Here are details.
Adjustable-rate mortgages, unlike fixed-rate ones, follow the path of short-term interest rates, which are currently being nudged upward by the Federal Reserve. Some analysts think the compressed yield curve — the spread between rates demanded for longer-dated bonds versus shorter ones — is what’s making ARMs so unattractive.
In the early 2000s, ARMs were a popular strategy for getting home buyers into properties they couldn’t have otherwise afforded. But they’ve always been a smart hedging tool for buyers or re-financers in specific situations: those who know they’ll only be in the home a short period, or are likely to pay off their mortgage quickly, for example.