VIRGINIA – As the U.S. government tries to cool inflation by raising interest rates, this week the U.S. Treasury 10-year yield surpassed five percent for the first time since 2007.
Camilo Alvarez is an assistant professor of economics at Washington and Lee University. He says the hike could mean fewer business investments and slowing wage increases. The rate hike could lead to a slowdown in the local economy as people are more cautious to spend or invest.
“It means everything,” said Alvarez. “All the interest rates are indexed to basically that number. It probably means less government spending and possibly brand new taxes.”
He also says it could impact the average family. As the 10-year yield rises, so do interest rates for nearly everything else, including cars, credit cards and mortgages. This month, mortgage rates hit eight percent for the first time since 2000.
Families already locked into lower mortgage rates are in luck. But if you’re looking to buy a home or downsize, you’ll need to shell out more cash in an already strained market.
Melissa Mason is a senior mortgage loan officer at Atlantic Bay Mortgage Group in Roanoke. She says the already high rates don’t seem to scare off buyers.
“It is a challenge with inventory, but the buyers are in abundance,” said Mason. “The problem is getting people to sell their homes because they’re sitting on a two or three or four percent rate and they don’t want to go up to a seven or an eight percent rate.”
According to the Roanoke Valley Association of Realtors, home sales are down 19% since this time last year and down 29% from 2021.
To combat higher interest rates, Mason says you can buy down your rate to lower your monthly payment. With student loan payments restarting, Mason says more people may be willing to refinance to consolidate their debt.
“We’re seeing folks take the equity out of their home to pay off credit card debts and student loans,” said Mason. “Maybe it’s college debt that they want to take care of for their kids.”
As the impact of the 10-year yield trickles down into the economy, Alvarez says it could be a sign a recession is on the way.
“The market, at least, has some fears that a recession is coming,” said Alvarez.