U.S.- CHINA TRADE WAR CAUSING HOME LOAN RATES TO DROP

George Lopez | May 14th, 2019

Rates are falling as investors shift funds from the stock market to the bond market

As the United States and China continue to raise tariffs on each other’s exports and push the two countries ever closer to an all-out trade war, U.S. consumers will undoubtedly start to feel the pain at the cash register very soon. Tariffs, after all, get passed on to consumers in the form of higher prices. However, amidst all of the saber-rattling and angry rhetoric making headlines there appears to be one bright spot - interest rates are dropping and homeowners stand to reap the benefits of lower home loan rates.

When China announced their retaliatory tariffs against the United States, Wall Street investors reacted immediately and the stock market dropped almost 700 points. As is usually the case when a major economic or political crisis breaks out, investors began moving their money from the stock market into the relative safe haven of the U.S. bond market. The end result? Mortgage rates have begun dropping as well.

Mortgage rates are influenced by a great many factors including the economy, the bond market, the Federal Reserve and of course, politics. However, the single most influential benchmark that home loan rates track is the U.S. 10-year Treasury Bond Index and that index dropped markedly in the aftermath of China’s announcement to raise tariffs. Mortgage rates followed suit and dropped as well.

If you’re interested in buying a house but you’ve been sitting on the sidelines, it’s time to sit up and take notice. Now is a great time to jump into the market and get a great interest rate on your home loan. Similarly, if you’re an existing homeowner who’s been considering tapping your home equity and getting a cash-out refinance to make home renovations or to pay off other debts, now would be a great time to make a move. The U.S.-China trade dispute could be settled at any moment and if you wait, you risk missing out on low home loan rates that could save you thousands of dollars over the life of your loan.

In another possible development, it’s not too early to speculate that the Federal Reserve may respond to this morning’s announcement by cutting their interest rates as well. In fact, Atlanta Fed President Raphael Bostic indicated on Friday that the central bank may have to cut its interest rates if consumer spending suffers as a result of the new round of tariffs. If the Fed does cut interest rates, that could spur another rally in the bond market and a corresponding reduction in home loan rates.

Trade wars are certainly no laughing matter and neither are higher tariffs. The new U.S. tariffs will undoubtedly raise prices on any number of consumer goods we import from China. Conversely, higher tariffs on U.S. exports will cause a great deal of pain for U.S. farmers and manufacturers. But if you’re considering buying a house this year or you’re an existing homeowner looking to refinance, you may have lucked out. Time is of the essence - the time to contact a mortgage lender like Nutter Home Loans is now.

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