Inverted Yield Curve to Cool U.S. Housing Market

By Richard Leong and Lynn Adler, Reuters

The bond market is popping the dreams of home ownership for some Americans.

Home buyers who can only afford to buy homes with lower adjustable-rate mortgages (ARMs), those who can scrape into a house with more “exotic” loans with low teaser rates, and some investors contemplating second home purchases could be soon shut out as short-term rates rise, analysts said.

The ARM “was a creative and good product in the market that was utilized by a lot of savvy consumers and that’s been great. But having said that, an ARM is no longer really an attractive option for the new home shopper, especially in this inverted yield curve,” said Robert Foregger, chief strategy officer at EverBank, in Stowe, Vermont.

On Tuesday, two-year Treasury yields rose above 10-year yields, inverting the yield curve for the first time in five years. ARMs are pegged against the yields on shorter U.S. Treasury yields, and fixed-rate loans are set against longer Treasury yields.

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