Can Trump's Focus on the 10-Year Treasury Help Homebuyers?

High mortgage rates have become a significant hurdle for prospective homeowners, putting a damper on the housing market. The focus on the 10-year Treasury note has emerged as part of a strategy aimed at alleviating this pressure and bringing down home loan rates. But can this approach work? Experts suggest that it's within the realm of possibility.

Earlier this week, it was reported that the 10-year Treasury yield is a key focus in efforts to lower interest rates and address the housing challenges. The aim is to reduce government spending and promote "noninflationary growth," which could help keep bond yields in check. Since these yields are closely tied to mortgage rates, this could potentially lead to lower borrowing costs for homebuyers.

The challenge, however, lies in the fact that the direction of the 10-year Treasury yield – and consequently, the 30-year mortgage rate – is primarily dictated by the financial markets, over which neither any individual nor the Federal Reserve has direct control.

Nevertheless, experts point out that various policies, including those related to taxes and other economic factors, can indeed influence both the 10-year yield and the 30-year mortgage rate. As one economist noted, while the market ultimately determines long-term rates, government policies and Federal Reserve actions can influence them indirectly by shaping investor perceptions.

The Connection Between the 10-Year Treasury and Mortgage Rates

This focus on the 10-year Treasury and mortgage rates comes at a time when the U.S. housing market is grappling with an affordability crisis. High home prices combined with elevated mortgage rates create a significant barrier to entry for many. For instance, a buyer considering a $380,000 home could face a monthly mortgage payment of nearly $2,800 at current rates. This affordability crunch has slowed down the housing market considerably, with sales of existing homes reaching historically low points in recent years.

Lower mortgage rates could potentially revitalize the market, stimulating both home purchases and refinancing activity. The goal is to bring rates down, but it's important to understand that neither any individual nor the Federal Reserve can directly dictate mortgage rates. These rates tend to follow the yield on the 10-year Treasury note, which itself is influenced by factors like inflation expectations. Lower mortgage rates can be a consequence of fiscal and monetary policies that impact the 10-year Treasury.

Despite this focus on the 10-year yield, the market has remained relatively stable. Interestingly, the 30-year mortgage rate recently experienced a dip, averaging 6.89% as of February 6, according to Freddie Mac. This data, based on thousands of lender applications nationwide, indicates some potential movement in the market, even amidst broader economic factors.