Mortgage Rates Tick Lower
With the lack of major economic data due to the government shutdown, investors turned their attention to other news last week. Increased trade tensions with China and favorable comments from the Fed were mildly positive for mortgage markets, and rates dropped slightly to their lowest levels of the year.
Trade Tensions Escalate Ahead of Talks
With a meeting scheduled for the end of the month between US and Chinese officials to discuss trade policy, it appears that leaders from both countries are taking actions to attempt to gain leverage in the negotiations. Notably, China expanded restrictions on the export of rare earth minerals. President Trump responded by threatening to raise tariffs on Chinese imports by an additional 100%. Some speculation began that the meeting will be cancelled, but so far it is still set to take place. In general, the primary impact of trade wars is a reduction in global economic growth, reducing future inflationary pressures, which would be favorable for mortgage rates.
Home Builder Confidence Rises
The latest survey of home builder sentiment on housing market conditions from the NAHB unexpectedly jumped from 32 to 37, far above the consensus forecast of 33 and the highest level since April. Bigger picture, though, the index remained in negative territory below 50 for the eighteenth straight month. According to the Chairman of the NAHB, builders expect a “slightly” improving sales environment due to anticipated easing of monetary policy by the Fed, despite challenges posed by higher costs.
Powell Signals Stable Fed Bond Holdings
A speech by Chair Powell last Tuesday discussed the appropriate level of bond holdings by the Fed. Powell explained that the Fed keeps reserves so that banks will have access to liquidity to help keep the economy running smoothly. Prior to the pandemic, the Fed held about $4 trillion in Treasuries and mortgage-backed securities on its balance sheet for this purpose. To help boost the economy during the pandemic, massive bond purchases pushed this to a peak of around $9 trillion in 2022. Since then, the Fed has been gradually letting maturing securities roll off its balance sheet to reduce its holdings. Powell suggested that the current level of roughly $6 trillion is likely appropriate based on economic conditions. If so, the Fed may resume purchasing bonds to replace maturing securities, and this potential added demand for MBS was positive for mortgage rates.
Mortgage Rates for the week of 10-20-2025