Wednesday, February 23, 2011

The Global Revolution



  1. He,

    Got a question: Could you elaborate on:

    A 100 bp rise in 10 year yield equates to about an 11% drop in home prices.

    Are you suggesting this to stunt Freddie/FNMA bonds as investors flock to TBILLS verus MBS? Thus cutting the never ending funding into housing?


  2. If you are buying a house let's say you have 2,000 to spend on a mortgage payment each month. For argument sake say this means you qualify for a 200,000 mortgage. So you are going to put down 20,000 plus the mortgage means you can afford a home for 220,000 right? All of a sudden rates rise 100 bp (say from 4.5 to 5.5% on a 30 year fixed). Your 2,000 monthly budget for a mortgage payment now qualifies you for a 180,000 mortgage and no longer 200,000. The result, instead of shopping for homes in the 220,000 price you are shopping in the 200,000 price. I made up the numbers for this example but the concept is the same. Make sense?