Obviously, the trade war is now the biggest driving force for mortgage rates today.
Before the arrival of customs and a wider trade war, inflation and unemployment dictated their direction. Suring inflation was a major reason why the mortgage rates rose to 8% at the end of 2023.
But no longer. At least not at the moment. Despite the fact that cool financial data is delivered every week, the bond yield (and mortgage rates) is rising again.
The latest proof came via a softer than expected CPI report, which would normally result in better interest rates.
Instead, the 10-year-old bond yield rose today, where it could otherwise have fallen. What gives?
Cooler Inflation Data is overshadowed by Customs Rates
If you have been aware of, the priority rates enjoyed a nice little run too late. But it suddenly ended a week ago.
When Trump entered the office for his second period in January, the 30-year-old fasting was close to 7.25%on average.
Within six weeks, from the middle of mid -January until the beginning of March, the rates fell to approx. 6,625%, possibly driven by the layoffs of massage, implemented by DOGE, and fear of a recession.
But there was always some restraint as the mortgage rates were lower. And it was due to the unknowns about Trump’s politics, including his favorite tariffs.
While waving and delaying planned tariffs in Canada and Mexico in February, he followed 10% duty against China.
Then he imposed tariffs for Canada and Mexico in early March before delaying them again until April.
But he doubled China and increased the duty of Chinese imports to 20%.
Then today he had another change of heart and imposed 25% duty on all steel and aluminum imports from any country. In other words, a world trade is now in effect.
Tariffs were inflationary before, and are likely to be again
The long and the short of it is that duty is known to be inflationary. And we have evidence because Trump also imposed duty in his first period.
While intended to punish the countries that export products, costs are typically just transferred to the final consumer who happens to be in the United States.
A report from the International Trade Commission found that tariffs imposed in 2017 “had an impact on downstream industries such as construction and car production that depend on steel entrances.”
This meant the prices of cars Skyrocket for consumers, which is not good news if you are actively fighting for the worst inflation in decades.
So while a cool financial report is typically good news for mortgage rates, it is overshadowed by inflation -inducing tariffs.
And who knows what tomorrow will bring? Even if inflation falls, who really cares if customs have the ability to make inflation much worse again?
That may be the reason why the cooler than expected CPI report released today did not lead to lower priority rates.
Or why the weak job reports published on Friday also did nothing to lower the rates.
Remember that Fed’s double mandate is price stability and maximum employment.
If both show signs of weakness, bond yield would probably fall and Fed would probably lower its own FED Funds.
In the process, mortgage lenders would also lower their priority rates. But it no longer happens, at least for the moment.
Instead, we see sticky high interest rates and slow down economic growth, often called stagflation.
Too Other, it could be argued that mortgage rates rose as Trump was expected to be the next president and has only really returned to the level before the election.
So despite some recent improvements, we are just back to square with a worsening economy to start.
Is uncertainty actually good for mortgage rates?
There is a saying that uncertainty is good at mortgage rates, largely because investors in times of uncertainty will ditch shares and make the aircraft security for bonds.
When they buy more bonds, their affiliated yields fall. So the 10-year bond yield that tracks the mortgage rates really well falls.
And with that, 30-year-old mortgage rates fall as well. At least that’s the theory. This can be done during a sale of the stock market or because of a geopolitical event.
It worked well in the month of February when the economy looked like it was cooling faster than expected and stoked renewed recession fear.
But recently, stocks have fallen while bond yield has risen. In other words, shares lose value and mortgage rates are rising.
Not exactly a good combination if you are a potential home buyer or an existing one who wants to apply for a rate and term refinancing to save some money each month.
It seems that uncertainty associated with customs and a broader trade war is not good for mortgage rates.
While duty has been discussed hot, most people expect more inflation if adopted.
For example, if products such as steel and aluminum go up in price due to customs, the products that contain it will also.
The same goes for timber from Canada, which theoretically raises the price of new homes built in the United States.
This either leads to more expensive homes or fewer new homes, with both scenarios raising the price of new homes.
Where would the mortgage rates be today without a trade war?
I’m curious about where the 30-year-old fast would be today, if not for the newly developed trade war.
As the customs lecture rose a week ago, the 10-year bond yield began to climb again.
Of course, there were financial reports mixed in that may have pointed to a more resilient economy, but it still feels like trade is governing the ship right now.
We seemed to go against a 6.5% 30-year-old fixed before we were derailed by another customs weight, which is still very fluid.
In my eyes, the financial data released recently were weak enough to drive prices under this key threshold, but now we don’t know.
Until there is more clarity on customs, mortgage rates will be stuck to these higher levels, although purely -friendly financial data continues to get through.
My biggest fear is the mortgage rates could again rise over 7%. And I just don’t know if the housing market can stomach it.
Read on: 2025 Predictions
