Rates peaked in the latter half of January after President Donald Trump returned to the White House. They’ve consistently moved lower since then, even as widespread tariff proposals and concerns about rising inflation have served as headwinds.
HousingWire Lead Analyst Logan Mohtashami wrote this week about the potential for a recession and how it may be driving mortgage rates lower. He noted that the 10-year Treasury yield, which mortgage rates tend to move in tandem with, dropped from 4.79% in mid-January to 4.22% on Monday.
“It’s an intriguing time in the bond market — while some might expect signs of a recession, I don’t think we’re there yet,” Mohtashami wrote. “Ever since 2022, we’ve witnessed a pattern of growth scares followed by lower interest rates.”
The likelihood that the Federal Reserve will lend a helping hand next week in the form of lower benchmark rates remains low. According to the CME Group’sFedWatch tool, only 3% of interest traders are betting on a cut by the Fed after its March 19 meeting.
Emily Gardner, chief lending officer at Atlantic Bay Mortgage Group, said that the stock market’s recent plunge is factoring into bond market conditions. CNBC reported that the Nasdaq composite index shed 4% of its value on Monday, its worst day since September 2022.
“The bond market has turned into a flight to safety given the threat of higher inflation from the latest tariffs and the negative impact that may have on bond prices,” Gardner told HousingWire via email. “It also seems like there is cash sitting on the sidelines, given the amount of sell off in stocks compared to bond buying.”
Christine Cooper, chief U.S. economist and managing director at CoStar Group, echoed these sentiments.
“The recent uncertainty related to the administration’s trade and immigration policies, both of which are expected to fuel inflation, as well as the recent federal layoffs prompted by the actions of DOGE, has led investors to choose less risky assets such as bonds,” Cooper said in an email.
But Cooper also noted that while Freddie Mac data shows that mortgage rates have dropped by more than 100 bps since peaking in October 2023, they’re still higher than any pre-pandemic level since 2008. She expects this to continue keeping many potential homebuyers on the sidelines even as rent growth has cooled in recent years.
“The combination of higher home prices over the past four years, lean inventories and higher interest rates brought housing affordability to a 38-year low in 2023, where it has lingered since,” Cooper said.
“Our Homes.com data shows that there are virtually no metros in the U.S. where the monthly cost of homeownership is below monthly rents. Apart from the possible wealth-generating aspect of owning (should current borrowing costs run shy of future returns from price appreciation), renting appears to be favorable for most residents.”
Although the market for new homes consistently outperformed the existing-home segment in 2025, that could change if a full-scale trade war materializes. On Tuesday, Trump threatened an additional 25% duty on Canadian steel and aluminum imports, on top of the 25% charge that is set to take effect Wednesday.
Gardner noted the damaging impact for homebuilders, who are baking in price increases of $7,500 to $10,000 for a new home due to the higher costs of building materials.
“Some or most of this would be passed on to the borrower,” Gardner said. “This jump in cost may spill over into the existing-home market as new-home inventory has still not caught up. Lower rates could help first-time and lower-income borrowers absorb some of this price increase, but with rates still hovering around 6%, that might not be low enough because the true cost of living remains high.”
“Higher costs will cut into homebuilder profitability while raising home prices,” Cooper added. “Builders have already been building smaller houses, which may improve their unit profitability while also yielding more affordable houses for first-time homeowners. However, with inventories remaining lean and borrowing costs still high, affordability will continue to be challenged.”