10-year Treasury yields over 3% focus market worries on housing data

12/30/2013 7:51 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

If yields on benchmark 10-year U.S. Treasuries hadn’t climbed over 3% on Friday, would today’s tiny disappointment in pending home sales for November be getting any attention at all?

I don’t think so. I think this is one of those cases where nervousness about the possibility that higher interest rates could lead to higher mortgage rates and slow the rate of home sales lends a data point more weight than it deserves.

In today’s numbers from the National Association of Realtors pending home sales increased by 0.2% in November. That was the first increase in six months and comes after revised figures for October showed pending sales fell by 1.2%. (The pending home sales numbers track contracts to purchase previously owned houses that haven’t yet resulted in closed sales. Existing home sales numbers are based on contracts that have closed.)

Even though the November increase was a positive sign after six months of declines, it was below the median projection of a 1% increase among economists surveyed by Bloomberg. Projections in that surveyed ranged from a drop of 1% to an increase of 5%.

The Federal Reserve’s December 18 decision to begin tapering off its monthly purchases of $85 billion in Treasuries and mortgage-backed securities in January is the reason that everybody cares about every bit of housing market data. The yield on the 10-year Treasury stood at 2.8% when the Fed met and while the climb to 3% has made the markets nervous, no one is quite sure how much of a move upward in rates translates into how much of a slowdown in the economy. The housing sector is extremely sensitive to changes in interest rates and everybody is looking to home sales as a leading indicator to see if the Fed’s decision will slow the economy. The average interest rate on a 30-year fixed mortgage has climbed to 4.48% in the week ended on December 26, up from 3.35% in December 2012. But the current mortgage rate is still slightly lower than the two-year high of 4.58% reached in August 2013.

A good rule to remember about the financial markets and economic data is that the market uncertainty makes all data seem more important—no matter its actual quality or predictive value.
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