MW Buying a house amid the trade war? Here's what to expect from mortgage rates.

By Aarthi Swaminathan

Tariffs are causing volatility in the financial markets, with implications for home buyers

Buying a house? Expect a bumpy ride when shopping around for the best mortgage rate as the U.S. economy grapples with the impact of President Donald Trump's tariffs.

Trump's new 25% tariffs on goods imported from Canada and Mexico, and an additional 10% tariff on Chinese goods, were due to take effect Tuesday - but the president said on Monday that he was pausing the tariffs on from Mexico for one month after a "friendly conversation" with that country's president, Claudia Sheinbaum.

Still, the chaos of the trade war could have big implications for the housing market.

What Trump's trade war means for mortgage rates

One of the biggest factors driving housing in the U.S. - from sales to construction - is the 30-year mortgage rate.

Mortgage rates appeared to be flat in the immediate aftermath of Trump's initial announcement on tariffs. The average rate on the 30-year fixed-rate mortgage didn't move over the weekend and remained at 7.05% as of midday Monday, according to Mortgage News Daily.

Expect some stability with rates in the very near term. As the stock market experienced significant turbulence on Monday morning, investors sought the relative safety of the 10-year Treasury note BX:TMUBMUSD10Y, which maintained around a 4.5% yield.

The 30-year mortgage rate generally moves up or down in tandem with the yield on the 10-year Treasury - so the 10-year's relative calm could mean mortgage rates may remain around the 7% handle and not move much, Cris deRitis, deputy chief economist at Moody's Analytics, told MarketWatch.

But things could change further down the line. If the tariffs that Trump wants to impose on foreign goods remain in place for a sustained period of time, financial markets could get nervous about inflation and the U.S. economy's growth.

At that point, "investors will demand a higher rate on the 10-year [Treasury]," deRitis said, which would pressure mortgage rates higher.

To be sure, the financial markets had already expected Trump to impose tariffs.

"None of this is new news; it's something that Trump has been talking about since before the election," Tom Hutchens, president of Angel Oak Mortgage Solutions, told MarketWatch. "That's why you're not seeing a lot of volatility around it."

The concern is likely about what else could be coming down the pike.

"Whether mortgage rates increase now depends on how the administration's implemented policies ultimately compare to what markets were expecting the president to do," Chen Zhao, head of economic research at Redfin $(RDFN)$, a real-estate brokerage, said.

The financial markets could also be waiting to see how this current trade spat gets resolved - or doesn't - to see if more tariffs are on the way, she added.

Why inflation matters to the mortgage industry

Consumer prices on imported goods are a key indicator to watch. The tax on imported goods could push up inflation as items begin to cost more. And if sustained, the tariffs are expected to hit consumer prices pretty hard, Brian Bethune, an economics professor at Boston College, said in a note.

That could prompt the Federal Reserve to take action by holding or even raising interest rates from the current level, to control consumer price increases and keep inflation at the Fed's desired 2% target.

And that could push up mortgage rates, in turn.

But expect the Fed to move carefully. "While they are unlikely to hike rates, they will be more reluctant to continue their cutting cycle if broad-based tariffs are imposed, especially if the economy remains strong," Zhao said.

Related: Fed interest-rate cuts might not come anytime soon, two top officials say

There is also the possibility that the trade war could also be a short-lived phenomenon. Hutchens, a mortgage-industry veteran, said he believes that the tariffs were a negotiating tool and won't be in place for long enough to be inflationary.

Housing crash an unlikely scenario

The tariffs couldn't come at a worse time for the U.S. housing market.

The nation is dealing with a critical lack of affordable housing, and many home buyers are shut out of an increasingly expensive market. Tariffs could push up home prices even more by increasing costs for home builders.

Moody's deRitis estimated that the U.S. has a housing deficit of 2.6 million homes. The wildfires in L.A. have erased even more housing, and some homeowners who lost their homes are now putting strain on the city's rental market as they seek refuge.

"Every bit of home loss is significant when you're in this deficit," deRitis said.

The bottom line is that it's not going to get any easier to buy a house for now. Don't expect a home-price crash, either.

"I don't see a home-price crash unless we had an outright economic crash," deRitis said. "It has to be a pretty significant recession that causes foreclosures to rise. ... It would have to be a very sustained, very nasty type of a recession."

And that's not a scenario he foresees - for now.

-Aarthi Swaminathan

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February 03, 2025 16:32 ET (21:32 GMT)

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