The real estate market in our area continues to just move sideways along what appears, from a volume perspective, to be the bottom. We did bump up to 20 buyers of single family homes over $400,000 for the month of July, but the three month moving average for the month (14.0) remains in the range we have been in for the last nine months--a range from 13.7 to 16.7 buyers per month.
And we don't see anything that is going to dramatically change this coasting pattern for a while.
Interest rates are not cooperating, with the 30 year mortgage rate going to the area slightly about 6.50%. As we have mentioned in the past, the 30 year mortgage rate is closely tied to the 10 year government bond
—a correlation of better than 98% over the last 27 years. The spread of the 30 over the 10 over that period has been 1.68%—9.16% vs. 7.48%; so on average, the 30 year
mortgage has been about 24.90% higher. That 27 year period does include the period of very high rates ion the '70's and '80's so let's look at just the last 10 years and see how that looks.
As expected, the last 10 years have had much lower rates, but the percentage premium is very similar. The actual average on the 10 year note (since the beginning of 1998) has been 4.81%, with the 30 year rate averaging 6.59%, a spread of 1.79%, or
38.25%.
So at first glance today's rate of 6.52% looks to be right in line with the average of the last 10 years—but today's 10 year rate is much lower than the average for the last 10 years, giving us a spread of 2.48%, or a whopping 61.39%.
Why are the spread and the premium so high? And what does it mean for real estate?