The pop in Treasury yields will likely push affordable mortgages, car loans and other financing even farther out of reach for consumers, say experts.
With rising yields, consumers “are going to pay more for new credit or credit that’s adjustable,” said Ron Haynie, senior vice president, housing finance policy, at the Independent Community Bankers of America, a trade association. “As the cost of credit goes up, it means it makes it more difficult for consumers to qualify,” he added.
Loans for houses and cars are the big-ticket types of consumer financing affected by Treasury yields, but not the only ones. The yield on the 10-year note is also cooked into the interest rate formula when federal student loan rates are set each spring. The rising yields on the 10-year Treasury note deepen the problem, Kornfeld said. High mortgage rates are a challenge for buyers and also worsen the “lock-in effect.” That’s when home owners are disinclined to sell their home because they don’t want to lose their existing — and usually much lower — mortgage rate, he noted.
The Fed stayed at current rates in its September meeting and is scheduled to announce its next decision on Nov. 1. A rise of one percentage point on a car loan for six years can lead to a 3% increase in monthly payments, he said.