Article Summary
Tariffs and trade policy have become a significant consideration for the bond market and, by extension, mortgage rates. The impact of tariffs on mortgage rates can be complex, as they can have opposing effects on economic growth and inflation. Over the weekend, the US and China agreed on a 90-day pause on tariff escalation, causing mortgage rates to rise but with less volatility than usual. The average lender is now at the highest level in over two weeks.
What This Means for You
- Be aware of the potential impact of tariffs and trade policy on mortgage rates.
- Understand that while tariffs can lower economic growth, they can also lead to higher inflation, which is bad for mortgage rates.
- Keep an eye on developments in US-China trade relations, as they can influence mortgage rates.
- Maintain flexibility in your mortgage rate expectations, as geopolitical events can cause rapid changes in rates.
Original Post
Tariffs and trade policy have been a new and important consideration for the bond market for just over a month now. That matters to mortgage rates because mortgage pricing is primarily determined by bond prices.
The reaction function for rates is a bit complicated at first glance because tariffs can exert influence in opposite directions. To whatever extent trade policy results in lower economic growth, it would generally be good for rates, all other things being equal.
To whatever extent trade policy results in higher prices, lower revenue, and lower foreign demand for US assets (which tends to correlate with trade relationships), it would push rates higher.
Over the weekend, the US and China agreed on a 90 day pause on the more extreme tariff brinksmanship. While levels remain elevated enough to cause some inflation concern (remember: bad for rates), they’ve come down enough to alleviate some concern about the global economy (also bad for rates).
Today’s move wasn’t huge as far as mortgage rate volatility goes, but the average lender is now up to the highest levels in just over 2 weeks.
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