Chinese Students' Laughter signals Bad News for Mortgage Interest Rates

US Treasury Sectretary Tim Geithner recently addressed a group of students at Peking University and stated that Chinese investment in US Treasury bonds was "very safe". His remarks were met with a round of laughter from the crowd. See the news article at http://www.reuters.com/article/companyNewsAndPR/idUSPEK14475620090601

The laughter was felt around the world, as investors were reminded that China's huge appetite for US bonds could be waning. Why does China's opinion affect interest rates? Interest rates are low when there is high demand for US bonds (government issued debt). If China, the US's biggest investor (at least $768 billion and counting) quits buying our bonds, demand will drop and rates will rise.

In addition to China's sentiment, the US government has issued of a huge amount of new treasury bonds in recent weeks to pay for the stimulus package, which has already caused lower demand and rising interest rates. Rates are above the historically low levels seen over the past few months and are expected to head higher as the US tries to finance its way out of recession.

So what should you do? If you are a homeowner and have an adjustable loan, or your interest rate is above 5.75%, you should lock into a low 30 year fixed mortgage to protect yourself from the possible rampant rate increases over coming years. If you do not yet own a home, you should get pre-qualified and find a home quickly, as rising interest rates could price you out of the market. Please call me with any questions.