Freddie Mac: Trade War Could Keep Mortgage Rates Down

July 17, 2018 — 12:22 PM EDT

The White House trade battle with China hasn't had much impact in the markets as of yet. And while the trade conflict could dent global growth if tensions ratchet up, it shouldn't have a negative impact for homebuyers.

That's according to Len Kiefer, deputy chief economist at Freddie Mac. In an interview with Scotsman Guide, the mortgage trade publication, he said the recent trade tensions with China have prompted a flight to safety for many investors, boosting global demand for bonds. That has resulted in keeping long-term interest rates at bay. If there is a broader trade war, that same movement to de-risk could keep mortgage rates from rising as well.

"What you see in terms of times of uncertainty where global growth may be questionable, investors around the world may look to the U.S. Treasury market," Kiefer said in the interview with Scotsman Guide. "Any time there is a major hiccup in economic activity, you'll tend to see a flight to safety and that has the effect of lowering bond yields and that drives mortgage rates down."

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Since the start of the year, mortgage rates had been rising, spooking investors and industry watchers that the spring real estate market would implode. More recently, mortgage rates have been declining or remaining steady as worries about trade wars boost demand for bonds. While it's not clear what impact tariffs will have over the longer term, Kiefer thinks the economy will be okay throughout next year. The Freddie Mac economist acknowledged that a major disruption in trade could hurt economic growth, and if it's extreme enough, it may push the U.S. economy into recession. "It is certainly a risk there. It is out there. It is something that could happen. It is not what we are currently expecting to happen," said Kiefer in the Scotsman Guide interview.

Source: Freddie Mac

According to Freddie Mac, for the week ending July 12, mortgage rates inched up, marking the first time since June that the cost to borrow for a home increased. The government-sponsored enterprise reporte that the interest rate on a 30-year fixed-rate mortgage was 4.53%, up 0.01% from a week ago and up 0.50% from a year ago. The mortgage rate on a 15-year fixed-rate loan was 4.02%, up 0.03% on the week and up 0.73% from last year. The mortgage rate on a 5/1-year adjustable-rate mortgage was 3.86%, up 0.12% from last week and up 0.58% from a year ago.

"The 10-year Treasury yield continues to hover along the same narrow range, as increased global trade tensions are causing investors to take a cautious approach. This, in turn, has kept borrowing costs at bay, which is certainly welcoming news for those looking to buy a home before the summer ends," wrote Freddie Mac in a release announcing mortgage rates for the week ending July 12.