We have mentioned previously the gradual weekly decreases in mortgage lending rates. We also mentioned the difficulty in predicting market prices.

Admittedly, we've been flummoxed by the direction of interest rates in the past. Two years ago, if someone would have asked us if the 10-year U.S. Treasury note could possibly yield 1.6 percent, we would have answered possible yes, probable no. Today, it yields 1.6 percent.

We'll venture out on a limb again and predict that the 10-year U.S. Treasury note is unlikely to go significantly lower. And we are not alone in this prediction. Warren Buffett, the multi-billionaire chairman of Berkshire Hathaway, believes that U.S. Treasury securities “are among the most dangerous of assets.” They are dangerous because yields are so low that they fail to compensate investors for time value and lost purchasing power. Dangerous, according to Mr. Buffett, means ripe for a sell-off.

We note Mr. Buffett's comments because mortgage lending rates take their cue from U.S. Treasury securities, particularly the 10-year note. The spread between the 30-year fixed-rate mortgage and the 10-year note is historically around 2-to-2.5 percentage points, and that holds today. The 30-year fixed-rate mortgage has been between 3.6 percent and 4 percent over the past six months.

Here's the issue and the risk for borrowers holding out for significantly lower rates: a sell-off in U.S. Treasury notes means yields will rise. That means mortgage lending rates will rise too. We're not saying that's going to happen immediately, but if the world's greatest investor expects it to happen, it's tough to argue it won't happen some time.

Courtesy of Jessica Regan.

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