More government debt sales… slows housing market

The US Treasury is flooding the market with debt sales as it seeks to fund the booming budget deficit. As the Washington Post reported, the government has revived 3 year note sales, having stopped selling this type of security in 1998. Further, “five-year notes, which used to be sold quarterly, are going to be sold monthly, while the 10-year notes, which have been sold quarterly, will now be sold eight times a year.”

In all, the government will sell $230 billion in the second half of the year, more than any other six month period in the nation’s history.

Interest rates are headed higher. This isn’t rocket-science, folks. When supply rises and demand stays steady, prices fall. Lower bond, note and bill prices mean higher interest rates. And higher interest rates means… lower housing prices.

As mortgage rates rise in tandem with US treasury rates, mortgage demand is swooning and may soon be comatose.

A smart Democratic challenger to Bush would be banging this issue hard.