Mortgage rates are bouncing around, though not because of inflation data or job numbers. Financial markets (stocks and bonds) are being shaken by President Donald Trump’s on-again, off-again tariffs. An impending trade war is causing a ripple effect on everything from Treasury bond yields to consumer prices to mortgage rates.
I’m not an economist, but I’ve been in the real estate business for more than two decades. Tariffs, or duties on imported goods, can drive up prices and trigger global retaliation, causing a widespread impact on housing affordability. While no one knows what will happen, the next few months will likely keep traders and investors on edge, keeping the roller coaster going.
If you’re in the market to buy, sell or refinance a home, here’s what you need to know.
What’s driving mortgage rates right now?
Mortgage rates tend to follow the 10-year Treasury bond yield. When the demand for Treasury bonds goes up (for example, when investors seek safety in government-backed assets instead of stocks), bond prices increase and yields fall. In that scenario, mortgage rates will generally follow suit and move lower.
In recent weeks, however, political headlines and tariff threats have created more volatility than any economic data point. After Trump’s tariff April 2 announcement, the bond market (alongside the stock market) experienced a sell-off, an unusual move that shows how deeply uncertain investors are. When longer-maturity US Treasurys are sold off in large quantities, the interest rates (or yields) on those bonds move higher, which could be a warning sign for the economy.
But isn’t there a tariff pause?
Trump’s tariffs were announced and paused in short succession, triggering market whiplash. You might have noticed a brief bond market rally that quickly reversed. Bonds generally act as a safe haven when the stock market is in turmoil but that’s not always sustainable. When demand for bonds plunges, investors might be losing confidence in the US government’s ability to repay its debts in the future.
While stress in the markets could ease as Trump relaxes some of his tariffs, a delay isn’t a resolution. The 90-day pause on tariffs just pushes uncertainty further down the road. Bond traders see it as a short-term political play, not a fundamental change in policy direction.
Inflation looks good, so why aren’t rates dropping?
The March Consumer Price Index report (released on April 10) came in well below expectations. Normally, when the inflation rate is lower or higher than expected, it can impact bond market trading.
But this time, markets barely budged. Why? Traders are already pricing in future inflation risks from tariffs. The bond market isn’t reacting to past data; it’s looking ahead and doesn’t like what it sees.
Is the bond market still struggling?
Rising yields usually indicate a lower appetite for bonds, and the threat of tariffs and Trump’s rapid policy changes are certainly causing gyrations in the market. Higher yields also mean the government has to pay more to borrow money, which impacts the national budget.
Without getting too much into the economic weeds, here are a few other reasons why the 10-year Treasury yield has gone up:
- The unwinding of Treasury carry trades
- Foreign central banks pulling back on US debt
- Concerns about weak Treasury auctions
- Hedge fund liquidations and tax-related selling
All these factors reduce demand for bonds and push yields higher. Because mortgage rates track those yields, they rise, too.
What’s the bigger picture behind tariffs?
Trump’s proposed tariff agenda targets countries that have large trade surpluses with the US, aiming to reshore jobs, generate revenue and lower interest rates by triggering a recession.
But reshoring is difficult without a large, skilled domestic labor pool willing to take lower-wage jobs. Tariffs can also backfire by raising consumer prices and inviting foreign retaliation. So far, the tariff threats have raised yields instead of lowering them, undermining the goal of cheaper debt.
Moreover, China isn’t likely to back down. It has lower labor costs, control over essential rare earth materials and lithium, and has major economic dependency on exports to the US. A prolonged trade war would hurt both sides and the global economy along with it.
How will tariffs affect mortgage rates and housing?
Foreign central banks hold roughly 31% of US debt. If countries like Japan, China or the UK reduce their bond purchases, that would push Treasury yields — and mortgage rates — even higher. Higher rates reduce home affordability, slow buyer demand and tighten credit conditions, even if construction material costs remain stable.
Tariffs are throwing a wrench into the bond market and mortgage rates are along for the ride. This isn’t just about trade policy. It’s about how uncertainty, inflation fears and reduced demand for US debt are putting upward pressure on borrowing costs across the board.
Since early March, average mortgage rates have fluctuated between 6.5% and 7%, which could be the range they’ll remain throughout much of 2025.
Is it smart to buy a home now?
If you’re closing on a home soon, consider locking your rate. Market sentiment is fragile, and volatility can wipe out rate improvements overnight. Floating only makes sense if you understand the risks and have flexibility on your timeline.
If you’re just starting to navigate the housing market right now, stay focused on facts, not fear — and make a plan based on what financially makes sense for you.
