Direction of mortgage rates

Hello everyone,

Here's the latest from our rate lock department:


And another record is set. For the last 5, count ‘em 5, years the U.S. has set new trade deficits. The latest was an enormous $763.6 billion, which barely needed December’s $61.2 billion gap to beat 2005’s $716.5 billion. Much of the disparity lies in the cost difference between goods in the U.S. and goods in China. China has managed to keep their currency artificially low against the dollar, as Japan used to do (and still does to a certain extent) in the 80’s and 90’s. This and the fact that they have been making quality products is why China has overtaken Japan since 2000 to become the largest supplier of goods to the U.S.

Members of the Federal Reserve and other government officials in the U.S. have been “strongly” urging China to allow their currency to trade more freely on the open market without intervention. Then, China’s currency (the yuan) would increase in value and close the gap between the cost of goods from China and elsewhere. Firmer U.S. government action is required in order to resolve the situation (assuming the government actually wants to resolve it). But, if the government were to take action, it would cause a spike in inflation, which would then crush consumer spending. Obviously, this would have a vastly negative impact on the economy, which is why the government is unwilling to step in. They would rather see this problem work itself out naturally.

Don’t forget, tomorrow morning at 8:30 ET January’s retail sales data will be released. Based on the limited reaction that we saw in the markets to this morning’s data, it seems apparent that traders are waiting for the sales numbers before making a move. We still expect the numbers to be stronger than forecast, which would have a very negative affect on bond prices.

This all means that if you're thinking about whether to lock or float a rate right now you probably want to strongly consider locking. There's a little uncertainty out there and that's not good for rates.

Please call me if I can help with a mortgage.

John Shea
Vice President
Summit Mortgage
781-224-2809 (office)
jshea@summitmortgage.com