The ten year treasury finally moved above 5% yesterday for the first time since 2002. Many have wondered how long the long term Treasuries could keep from rising along with short term rates. At the beginning of 2005 the 10 year stood at 4.23% and began 2006 at only 4.37%, yesterday it ended at 5.05%. The ten year treasury is commonly used to set mortgage rates and Real Estate is typically inversely correlated with interest rates – in other words – higher rates lead to lower real estate prices (all things being equal). The 10 year has risen by 68 basis points (.68%) in just three and a half months, that is a 15.5% increase, quite a jump. The yield curve is no longer inverted, though it is quite flat from 6 months to ten years. Interest rates are impossible to predict, though some believe that this rise in long term rates was inevitable. It will be interesting to see how this affects real estate.
The link I provided is to an article from Bloomberg which also has links to several video files that talk about this latest move.