Mortgage Rates Influenced by China Economy Slowing, Obama Administration Restrictions

In the last week, China’s announced that it will endeavor to slow its economic growth; at the same time the Obama Administration’s proposed new restrictions on the activities of financial institutions, as originally proposed by economic adviser and former Federal Reserve Chairman under the Reagan Administration, Paul Volker.  Both measures are expected to lead to slower economic growth in the US.  While these actions may hurt the stock market, they do benefit fixed income markets. As a result, mortgage rates ended a little lower.

As to China, it released a report showing that its GDP grew at an 8.7% pace in 2009. In a move to avoid inflation that normally accompanies such growth, China announced that it is going to curb bank lending. Any intentional slowdown by China will be felt around the world, including here in the US.

The Obama Administration proposed limiting the size and activities of large banks in order to reduce the risks to the financial system as a whole, namely re-instituting some variance of the Glass Steagall Act, and referred to as the ‘Obama-Volcker’ Proposal. If passed by Congress, this too would lead to slower growth for the financial sector. The potential for slower economic growth and the resulting reduction in inflationary pressures was ultimately favorable for mortgage rates.  Hence, the adjustment in rates.

The benefit for home buyers from the continued lower interest rates will obviously have a positive influence on the housing market.
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