Chief economist says borrowing costs will probably fall even as trade chaos rumbles on
Some of the nerves that roiled global financial markets in the wake of President Trump’s “Liberation Day” wave of tariffs have eased, with bond yields – which surged in the week after Trump launched his trade war at the beginning of April – sliding at the start of this week.
That drop arrived amid growing speculation that the Federal Reserve will step in to lower interest rates in the months ahead even despite the insistence of its chair, Jerome Powell, that it won’t be rushed into a rate cut.
And while the mid-April jump in 10- and 30-year US Treasury yields sparked fears that mortgage rates were set for a prolonged climb, the drop in borrowing costs forecast before the tariff war still seems a good bet.
Lawrence Yun (pictured top), chief economist and senior vice president of research at the National Association of Realtors (NAR), told Mortgage Professional America that rates were probably on the way down, even if the trade war had thrown a curveball into the mix.
“More uncertainty has been added to the forecast,” he said. “However, mortgage rates should decrease as inflation continues to move lower due to decelerating rent growth. The temporary oversupply of apartments is holding down rents. The impact of tariffs is uncertain – though a response has not yet shown up in the data.”
Could China deliberately bump US mortgage rates higher?
Still, while markets appeared buoyed by Trump’s decision to introduce a 90-day pause on most of the tariffs he unveiled in the Rose Garden on April 2, huge levies are still in place on China as the world’s two largest economies continue to trade blows.
Last week, the president appeared to walk back some of that aggression, saying he would be “very nice” in his approach to trade talks with the Chinese.
He also suggested tariffs on Chinese goods, currently sitting at 145% with some exemptions, would “come down substantially, but it won’t be zero,” while Treasury secretary Scott Bessent admitted at a JP Morgan Chase private investment conference that the trade war is unsustainable in the long run.
Trump’s first 100 days exposed a deep rift in the mortgage industry. Rising rates, tightening credit, and fears over worsening affordability have split experts: those betting on the resilience of housing, and those warning of a looming crisis. https://t.co/UvXilMznGp
— Mortgage Professional America Magazine (@MPAMagazineUS) April 29, 2025
But China refuted claims that negotiations were already underway last week – and a prolonged and punishing trade war between the two superpowers could have big consequences for the US mortgage market, according to Yun.
That’s because China could put significant upward pressure on bond yields – and by extension, mortgage rates – by offloading Treasuries, with about $784 billion of US government debt in Chinese hands, according to official data.
“If mortgage rates turn higher – from, say, China dumping mortgage-backed securities and US Treasuries or due to higher inflation – then the housing market will struggle,” Yun said.
For now, that remains a distant prospect. While the US economic outlook continues to darken, and Fannie Mae has once again adjusted its expectations for the housing market’s performance both this year and next, Trump’s more conciliatory language towards China appears to have soothed some of the angst that reverberated through the stock market in recent weeks.
If Trump opts to extend that pause on tariffs to China, Yun said, “the housing market would improved based on increased jobs, lower inflation and lower mortgage rates.”
Don’t expect the housing market to crater amid economic storm
The NAR is expecting existing home sales to tick up by 6% by the end of this year, with new home sales projected to see a bigger jump (10%) and mortgage rates to slide below the 6.5% mark, hitting 6.4%.
For 2026, meanwhile, existing home sales should recover further – rising 11% over 2025 – with mortgage rates to hit a floor of 6.1%, and new home sales set to increase by a further 5%.
Fannie, meanwhile, now says rates will dip to 6.2% by the end of this year and 6.0% in 2026, down from their previous forecast of 6.3% and 6.2%, and it also believes mortgage originations are on the up despite the tariff chaos.
The total volume of mortgages originated in the US is expected to hit $1.98 trillion this year – and it’ll spike as high as $2.33 trillion in 2026, Fannie said.
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