Is it too soon to be talking about the end of the trade war?
Perhaps, but there have been rumblings of a closed-door meeting to get a deal done, along with a softer stance from President Trump.
The man who tends to get bond yields to calm down, Treasury Secretary Scott Bessent, was a speaker at said meeting.
He reportedly called the current situation unsustainable with the two largest trade partners effectively frozen thanks to heavy reciprocal tariffs.
So if/when some sort of resolution springs up, could it get mortgage rates back on their downward trajectory?
The Current Trade War Is Unsustainable
During the private investor summit that took place in Washington D.C., which happened to be hosted by none other than JPMorgan Chase, Bessent expressed that the current impasse between the U.S. and China wasn’t viable long term.
And added that a de-escalation was expected in the “very near future.”
After all, China’s largest trading partner is the United States. And by a wide margin.
Whereas our largest trading partners are Canada and Mexico, which we made deals with after initially threatening larger tariffs, followed by China.
So clearly there’s a lot at stake and an ongoing trade war would likely lead to a lot of unintended consequences neither side may actually want.
There’s also the thought that dialing things back after going further might be just the right amount of tariffs to appease both parties.
A sort of Goldilocks level of tariffs might work, allowing both countries to feel as if they have won, or at least not lost.
And that could prevent bigger problems, such as China selling its Treasuries and MBS, which could further increase bond yields and mortgage rates.
Many also expect tariffs to be inflationary and simply passed onto consumers, at a time when inflation finally seems to be under control.
Simply put, if the pair can find a solution, we can put this behind us and get back on track.
If you recall, things weren’t so bad a few months ago, and many are now wishing we could just put the past couple months behind us and move on.
Will It Really Be That Simple Though?
If I’ve learned anything from this ongoing trade war, it’s that not all is what it seems. One day President Trump is talking about firing Fed Chair Jerome Powell.
And the next day he says he’d never do such a thing. Oh, and last week he mentioned that Chinese tariffs would “come down substantially.”
“I think that we will make a deal with China,” Trump told reporters at the Oval Office. Though he added “I think we have plenty of time.”
Huh? But I thought it was pedal to the metal on tariffs and Jerome’s got to go?
I guess that was yesterday and last week, and Tuesday is a different ballgame. Does make you wonder what Wednesday will bring though, eh?
That’s kind of the point I’m trying to make here. It would be pretty naïve to think this is it, the trade war’s over.
No way. There’s definitely going to be another twist in this tale. Heck, I wouldn’t be surprised if Trump threatens Powell’s job again. Or if tariffs on China go even higher, somehow.
It is this very uncertainty that has led to so much volatility in the markets, whether it’s stocks or bonds.
The stock market has gotten pummeled and mortgage rates, very recently trending down to the low 6s, are back to basically 7%.
And they’re there at the worst possible time, the spring home buying season. Not great with inventory beginning to pile up as affordability remains out of reach for many.
I Still Expect Lower Mortgage Rates in the Third Quarter and Onward
While it’s next to impossible to know what’s next in this trade war saga, chances are it’ll go on a bit longer.
As Trump said, there’s still time and apparently no rush to make a deal. But the more important piece is that a deal will come.
So it might be best to just zoom out and ignore all the short-term noise while this evolves (and devolves) and hopefully gets better again.
How long might that take? Well, perhaps we should just throw out the second quarter, which ends on June 30th.
Just be patient and wait for a resolution. Of course, prospective home buyers can’t just sit around and wait if they happen to find a property they like.
They might have to settle for a higher mortgage rate. The same goes for existing homeowners looking for rate relief from a rate and term refinance. Might have to hold out a little longer.
But I do still think relief is coming in the second half of the year. And that would align with my 2025 mortgage rate prediction, which has the 30-year rising in the second quarter before falling in Q3 and Q4.
In fact, I have the 30-year dropping to 6.25% in the third quarter, then to 5.875% by the fourth quarter.
It just might be (probably will be) choppy along the way. And while I’m hopeful my prediction comes true, we can’t rule anything out with this administration.
Things might get worse before they get better.
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