How to Lose $26,090.34 in 2 Months

by JT McGee

The median sales price for homes was $221,800 in 2010, according to the US Census Bureau.

At the end of April, a median home from 2010 would set you back $977.50 per month, or $351,900.94 over the life of the loan. Today, you’d pay $1049.98 for the same home, or $377,991.28 over 30 years. Rate fluctuations have made owning a median home now $26,090.34 more expensive than buying it two months ago. Mortgage rates moved from 3.35% to 3.99%.

Rising rates are taking hold. Today, the 10-year US Treasury closed with a yield above 2.5% for the first time since the summer of 2011 as central bankers discuss higher rates in the United States.

When good news is bad

Wall Street is now rooting for bad economic indicators. The Federal Reserve intends to keep zero interest policy until unemployment falls below 6.5%. There’s still room to go; unemployment numbers hit 7.6%, up from 7.5% in April. If unemployment falls much further, higher rates could be right around the corner.

Wall Street loves cheap and easy money. In a post earlier this year I commented on Bernanke’s boom, a boom caused by cheap money and free love in the financial markets. Credit is easier to find now than ever. Even junk-rated firms were borrowing at under 5% per year in April! (For reference, junk is about as good as American consumer credit – credit cards, and unsecured lending products.)

How much longer can rates rise? Who knows. No one wants to be ahead of the Fed’s exit given that the central bank is throwing $85 billion into the financial markets each month. When they pull out, someone has to make up for that demand. There aren’t many (any) someones with $85 billion to add to the market each month.

We live in interesting times. After a 30-year bull market in bonds, what happens in a 30-year bear market?

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