Earlier in the week the stock market freaked a bit when the yields and on the 2 Year and 10 Year Treasury notes began to converge. (https://www.msn.com/en-us/finance/news/whats-a-flattening-yield-curve-and-why-it-should-scare-you/ar-BBKPlkx ) This "flattening", when yields on the short term and long term treasury bonds start to close in on each other, has been a reliable predictor of oncoming recessions.  So, what does this mean for the real estate market?  Well, a lot.

You see, the last time these two yields converged and actually inverted (where the 10 year treasury yield falls below the 2 year yield) was 2008.  And we all know what happened that year....financial crisis, and the housing market tanked.

Now, no one is necessarily predicting a full out housing market crash like we experienced in 2008, but even moderate recessions have negative effects on home prices.  And when the yield on the short term treasuries start to increase it costs more for banks to borrow from the Federal Reserve which causes them to tighten credit, in turn raising interest rates on money they lend to their borrowers.  You can see how that would negatively affect the real estate market.  In addition, recessions invariably mean job losses.  And when people are unemployed they're not buying homes.  In some cases they're having to sell their homes, often at reduced prices, which then starts a snowball effect on home values around them.

So although it seems like a mundane and somewhat obscure phenomena, keep an eye on the 2 year and 10 year treasury yields over the coming months.  If the Federal Reserve continues to pump the brakes on the economy by raising interest rates we could see some pain in the housing market sometime soon.

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