Mortgage Rates, Geithner, China and You


Mortgage markets deteriorated last week on the heels of weak economic data and uninspiring corporate earnings.

Mortgage rates rose for the second week in a row. They’re now measurably higher than the low point set 3 weeks ago.

For mortgage rate shoppers, though, last week’s most important stories weren’t necessarily last week’s most reported stories; the most obvious of which was soon-to-be Treasury Secretary Tim Geithner’s assertion that China may be manipulating its currency.

This assertion poses risks to mortgage rates because China is one of the largest buyers of U.S. mortgage-backed bonds. Its ongoing bond buys helps keep mortgage rates down. But an angry China is less likely to buy U.S.-backed debt and that would pressure mortgage rates hgiher. Said China of the Geithner remarks, we’re angry.

Other mortgage rate-altering stories included:

In addition, just to show how backwards markets are right now, in “ordinary” times, economic weakness often leads mortgage rates lower. In this market, however, it’s having the opposite effect. Whenever the economy looks sour, mortgage rates seem to rise.

Americans in want of a mortgage have been at the mercy of Wall Street’s fickle sentiment lately. It’s a nerve-racking place to be.

This week, markets hope to be calmed. There’s a handful of news releases including Existing Home Sales, New Home Sales and consumer confidence surveys that will help paint a clearer picture of the economy, but the Federal Reserve’s 2-day meeting should steal the spotlight. The Federal Reserve is expected to hold the Fed Funds Rate at its current range of 0.000-0.250 percent.

However, the Fed Funds Rate is somewhat of an afterthought this week. Markets are more concerned with what the Fed will be doing to loosen bank lending nationwide.

Markets will evaluate the Fed’s response and if they deem the stimulus to be too large (or too small), mortgage rates should rise. If the Fed’s moves are “just right”, look for rates to fall.

The Federal Open Market Committee adjourns at 2:15 P.M. Wednesday.

(Image courtesy: The Wall Street Journal Online)

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1 Comment

  1. Not only do we have to worry about China not wanting to buy mortgage backed securities, but they are starting to waffle on their willingness to buy Treasury securities. Can’t say as I would blame them — with the U.S. government printing money by the boatload to pay for bailouts – I would also be a concerned creditor. Either way – if China stops buying, interest rates will move higher and put more strain on an already weak housing market.

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