What will happen to mortgage rates as the trade war heats up?

Mortgage News Daily reported even greater movement in recent weeks as the 30-year fixed rate climbed from 6.6% on April 4 to 6.98% on Monday.  

Market observers remain bearish on their near-term expectations for Federal Reserve cuts. The CME Group’s FedWatch tool shows that 83% of interest rate traders believe that benchmark rates will stay in a range of 4.25% to 4.5% following the Fed’s meeting in early May. That share, however, has declined slightly from the last week of March when nearly 90% predicted no changes.

Looking further ahead, 61% of traders think that a 25-bps rate cut is in the cards after the Fed’s meeting in mid-June, while 11% are forecasting a cut of 50 bps.

Melissa Cohn, regional vice president of William Raveis Mortgage, said that the recent runup in mortgage rates is mainly tied to sales of U.S. bonds by foreign investors, which has pushed up Treasury yields.

The 10-year Treasury, for instance, bottomed out at 3.99% on April 3 — the day after Trump’s self-described “Liberation Day” global tariff policies were announced. It rose rapidly over the next few days and stood at 4.35% on Tuesday.

Even as some investors are calling for the Fed to cut rates through an emergency session, Cohn said it would have little impact. Foreign entities owned roughly 15% of U.S. agency mortgage-backed securities at the end of 2024, according to Ginnie Mae. And three Asian trading partners that have been impacted by the ongoing trade war — China, Japan and Taiwan — hold 51% of these securities, although that share has declined from 60% in mid-2022.

“They have more leverage against us than we have against them — they could derail the real estate market,” Cohn said in written commentary. She added that the Fed “knows that doing an emergency rate cut could create more damage to the economy by allowing inflation to run up again.”

The cloudy economic outlook was reflected in Fannie Mae’s newest survey of housing market experts. The panel’s home-price appreciation forecast was downwardly revised from the fourth quarter of 2024 and is now expected to end 2025 at 3.4% — much lower than the 5.8% gain posted last year.

But HousingWire Lead Analyst Logan Mohtashami remained optimistic in his latest housing market forecast. He noted that purchase mortgage applications have posted positive growth in seven of the first 13 weeks of 2025 and are 10% above year-ago levels. Meanwhile, weekly pending home sales remain slightly ahead of last year’s pace.

The U.S. Census Bureau will release residential construction data for March on Thursday, offering a further glimpse on how homebuilders are responding to Trump’s tariffs. Data for February, when there was less certainty on tariffs, showed that permits for new homes were down 1.2% from January and 6.8% below year-ago levels. Housing starts were up 11.2% from the prior month but down 2.9% year over year.

Trump signed a day-one executive order that called for “emergency price relief” and expansion of housing supply. But in a report published Monday, The Hill noted that housing-related actions in the opening months of the administration appear to run contrary to that goal.

It focused on actions by the U.S. Department of Housing and Urban Development (HUD) — including attempts to drastically cut back the size of its workforce, its elimination of the Affirmatively Furthering Fair Housing Act, and its axing of a program that funded climate-resiliency upgrades in low-income communities.

Terry Clower, a public policy professor at George Mason University with a background in housing and land use planning, told the outlet that he thought Trump officials were placing a lower priority on housing than they had originally indicated.

“I think a reasonable concern here is, even for the programs that are not outright canceled, who’s going to be left to administer the programs?” Clower said. “If the purpose is to be disruptive, they certainly are accomplishing that.”