After a bout of inflation worries pushed it above 5 percent last summer, the yield on the 10-year note fell to as low as 4.424 percent last month amid hopes that the Federal Reserve would need to cut interest rates this year. “It’s low long-term interest rates that are helping to provide the safety net for housing,” said Delores A. Conway, director of the Casden Real Estate Economics Forecast at the University of Southern California. Mortgage applications have fallen since peaking in early December, though at least some of that is probably a function of a seasonal slowdown during the holidays. Ms. Conway and many other economists do not expect yields and rates to rise significantly from current levels in the coming 12 months. Still, a sustained climb in interest rates could hit some parts of the housing market harder than others. The East and West Coasts and the Southwest remain vulnerable because a surge of new construction has left them with a big inventory of homes for sale.
January 9, 2007