Mortgage rates down on trade war, bond prices
30-year fixed rate may fall as low as 3.3%, economist says
Wall Street’s anxiety over the Trump administration’s trade war with China could herald lower mortgage rates for homebuyers, but a chronic shortage of houses for sale will keep prices high.
Investors fearful the trade war could sharply slow global economic growth have been buying bonds, sending the yield on the 10-year Treasury note to its lowest level since October 2016.
The average rate on a 30-year fixed-rate mortgage, which tracks the trajectory in 10-year Treasurys, fell this week to 3.60%, its lowest since November 2016, according to Freddie Mac. It was 3.75% last week and 4.59% a year ago.
If the slide in bond yields continues, the average rate on the benchmark 30-year home loan could fall below 3.5%, housing economists say.
Lower mortgage rates give homebuyers more purchasing power, which could entice them to go house-hunting.
But with the supply of homes for sale down 15% since December, sales are lagging.
“Demand can pick up, but if the supply does not pick up, it just means prices will be accelerating higher,” said Lawrence Yun, chief economist of the National Association of Realtors. “Supply has been a major bottleneck.”
Also, homebuyers may not be immune to Wall Street’s jitters about a slowing economy, which could make them feel uneasy about buying a home.
“Given that a home is a major expenditure, people need to be confident about economic prospects over the long haul,” Yun added.
Investors have sought out safety in U.S. government bonds this week as the trade dispute between Washington and Beijing escalated again. President Donald Trump announced a new 10% tariff set to go into effect next month on Chinese imports that haven’t already been hit with prior tariffs. China retaliated by allowing its currency, the yuan, to weaken against the U.S. dollar.
The spread between the 10-year Treasury yield and the average rate on a 30-year fixed-rate mortgage has historically been about 1.7 percentage points, said Odeta Kushi, deputy chief economist at First American Financial.
That means if the bond yield for 10-year Treasurys drops back to 1.60%, the average rate on a 30-year mortgage could drop as low as 3.3%, though 3.54% is more likely, she said.
At bond yields’ current levels, Yun expects the average rate on the 30-year fixed rate mortgage to drop to around 3.4% or even 3.3%.