Mortgage rates are notoriously volatile, changing daily and even hourly. Recently, the housing market has experienced significant fluctuations, particularly as President Donald Trump's proposed tariffs have injected uncertainty into the economy. The average rate on a 30-year fixed mortgage has oscillated dramatically between 6.5% and 7% over the past few weeks, leaving potential homebuyers and industry stakeholders in a state of concern.

Housing experts suggest that while mortgage rates might remain in this range for an extended period, numerous unpredictable factors could influence their long-term trajectory. These factors include the health of the economy, which may be edging towards a recession, the risk of renewed inflation, and the possibility of sweeping tariffs being enacted or postponed.

Melissa Cohn, a regional vice president at William Raveis Mortgage, elaborated on the situation, stating, "The fact that [President Trump] has been very impulsive with his statements and his actions, especially concerning this major trade war with China, has made mortgage rates somewhat directionless." As tariff negotiations are ongoing, the potential outcomes for financial markets remain unclear.

This unpredictability presents a challenge for the Federal Reserve, which has opted to pause interest rate cuts until there are clear indicators of an economic slowdown. Recently, President Trump has intensified pressure on Fed Chair Jerome Powell to preemptively lower interest rates to stimulate the economy. As investors and lenders brace themselves for updates on Trump's trade policies, further volatility in the mortgage market appears imminent in the coming months.

Gregory Heym, chief economist at Brown Harris Stevens, noted, "Uncertainty about the tariffs and the volatility in the stock market could lead to a slowing economy or even a recession, which should help get inflation lower and bring rates down. However, there's also a risk that we could end up with higher inflation due to the tariffs, which would not be favorable for mortgage rates."

High borrowing rates are just one of the challenges facing prospective homebuyers in a housing market already strained by elevated home prices and low inventory levels. As the spring homebuying season approaches, potential buyers need to understand what to expect.

What factors could influence the rise or fall of mortgage rates? Ultimately, mortgage rates are heavily influenced by the economic impact of government policies and the anticipated pace of the Fed's interest rate adjustments. Conflicting economic forces and policies could either push rates up or down.

The ongoing uncertainty regarding tariffs has caused disarray in the bond market, which in turn impacts mortgage rates. These rates are closely linked to 10-year Treasury yields, which have exhibited dramatic swings in response to news headlines, economic indicators, and even social media updates from the President.

For mortgage rates to stabilize or decrease, there needs to be clearer information regarding geopolitical relations, global supply chains, and government debt. Trump's tendency to shift his stance on trade policies adds another layer of uncertainty to the situation.

Greg Sher, managing director at NFM Lending, cautioned, "Significant tariffs at this juncture would not only exacerbate inflation but could initiate a chain reaction of economic challenges that central banks and governments are ill-prepared to handle."

As of now, after showing signs of slowing inflation in late 2024, the Federal Reserve reduced interest rates three times but has recently chosen to hold rates steady. The central bank is anticipated to maintain its current borrowing rates during its upcoming Federal Open Market Committee meeting on May 7.

Should unemployment rise and economic growth slow, the Fed may be compelled to reduce interest rates later in spring or early summer. Yet, any increase in inflation driven by Trump's comprehensive tariffs could delay these cuts.

While the Fed does not directly set mortgage rates, its policy decisions greatly affect consumer borrowing rates over time. Given the sensitivity of mortgage rates to fiscal policy and economic growth, these factors are critical.

Experts are increasingly concerned about recession risks. If the economy does slip into a recession, as many analysts predict, mortgage rates could potentially drop. Interestingly, even the mere anticipation of an economic downturn can lead to lower mortgage rates, as investors often seek refuge in safer investments like U.S. Treasury bonds, which in turn drives long-term yields down.

However, waning investor confidence in the U.S. economy could disrupt this trend. Gregory Heym pointed out, "People are starting to question how safe even U.S. Treasuries are, and those are considered the gold standard for safety." A significant worry is that foreign trading partners, who hold substantial amounts of U.S. Treasury debt, might sell off that debt, causing yields to skyrocket. In such a scenario, Melissa Cohn asserts that even rate cuts from the central bank would struggle to lower yields or mortgage rates.

For those who believe that a recession will make homebuying and obtaining mortgages cheaper, its crucial to keep in mind that this may not be the case.

As potential homebuyers navigate today's housing market, several tips can help them secure more favorable mortgage conditions. Experts recommend focusing on the following strategies:

  • Build your credit score: A higher credit score can significantly influence mortgage approval and the interest rate offered. A score of 740 or above can help secure better rates.
  • Save for a larger down payment: A higher down payment can not only reduce the mortgage amount but also lower the interest rate from lenders. A minimum down payment of 20% can also eliminate the need for private mortgage insurance.
  • Shop around for mortgage lenders: Comparing loan offers from multiple lenders can help you negotiate better rates. Its advisable to obtain at least two to three loan estimates.
  • Consider purchasing mortgage points: Buying points can lead to lower mortgage rates, with each point costing 1% of the total loan amount and typically resulting in a 0.25% decrease in the mortgage rate.

As the housing market continues to evolve, staying informed and strategically preparing can make a significant difference for prospective homebuyers.