patrick.net

I am currently in the process of buying a house and on the fence about locking in a rate for our 30yr-fixed. All this debt ceiling debate is making me crazy. For awhile I assumed that they would just raise the ceiling and call it a day like so many times in the past. Now with all the bickering going on its hard to be certain about that outcome.

Speaking of assumptions I had been assuming that if a deal is not reached and the ceiling is not raised, then interest rates would quickly go up. However, in the following article (and another which I don't have the link to) they suggest that rates would actually go down due to investors flocking to Treasuries. Why to Treasuries? It's so counter-intuitive.

Do I wait to lock or not? Aug 2, by the way, would be when I can get a 15-day lock to cover until the closing date. In general this would get me a better rate compared to a 30-day lock. However, as of Friday the 30-day and 15-day locks were the same rate (4.625% with 0 points if you are curious) and the same as the 30-day rate about 4 weeks ago. Perhaps rates will in fact go down due to the economy that just won't recover. What do you think?

http://money.cnn.com/2011/07/28/news/economy/debt_ceiling_interest_rates/index.htm (partial quote)

NEW YORK (CNNMoney) -- The nation is just days away from the debt ceiling deadline, and no one knows exactly what will happen when the borrowing limit is reached. But even in the worst case scenarios, many experts think investors will flock to U.S. Treasuries.

That possibility would mean lower borrowing costs for the government, not the spike in interest rates that many were expecting.

"Intuitively, this might not make sense because you would think there would be selling of Treasuries, but instead the Treasury market is well-supported," said Richard Bryant, head of Treasury trading at MF Global.

The experts admit they're not sure how markets will react if there is no solution by the Aug. 2 deadline. But many believe that stocks will suffer more in the uncertainty caused by a debt ceiling crisis.

"We'll have a liquidation of risky assets and a flight into quality," said Kim Rupert, Managing director of Fixed Income for Action Economics. "There really isn't an alternative [to Treasuries]."

#housing