A new housing development built along a channel near the Mokelumne River is seen on May 22, 2023, near Stockton, California.
George Rose | Getty images
Mortgage rates are increasing considerably this week, since investors sell the United States Treasury bonds at a fast pace. Mortgage rates freely follow 10 -year treasure performance. Some speculate that foreign countries could be abandoning US treasurers in retaliation against the tariff plan of President Donald Trump.
But there is another even greater concern, both for mortgage investors and for the important spring housing market. What happens if China, one of the largest securities holders backed by agency mortgages, or MBS, decides to sell those holdings also in response to the United States commercial policies? What if other countries follow it?
“If China would like to hit us strongly, they could download treasures. Is it a threat? Surely,” said Guy Cecala, executive president of Inside Mortgage Finance. “They are going to seek to push the levers and try to press … Point to housing and mortgage rates is a powerful engine of something like that.”
At the end of January, foreign countries had $ 1.32 billion of US MBS, or 15% of the total pending, according to Ginnie Mae. The best owners: Japan, China, Taiwan and Canada.
China had already begun to sell some MB of the USA last year, with the country’s holdings at the end of September of 8.7% year after year and 20% less at the beginning of December. Japan, who had shown profits in his MBS in September, showed a fall in early December.
If China and Japan further accelerated those sales, and if other nations follow, the mortgage rates would increase even more than they are now.
“The concern, I think, is on the radar screens of the people, and is raised as a potential source of friction,” said Eric Hagen, a mortgage finance analyst in Bigg. “Most investors are concerned that mortgage differentials were expanded in response to China, Japan or Canada with a retaliation objective.”
The expansion of differentials means higher mortgage rates. The spring real estate market is already staggering in the midst of high housing prices and weakens consumer confidence. Given the recent defeat in the stock market, potential buyers are increasingly concerned about their savings and work. A recent Redfin survey found that 1 in 5 potential buyers sell actions to finance their low payments.
Hagen said that the sale of MB by foreign entities could further scare the mortgage market.
“The lack of visibility of how much they could sell and their appetite for selling, I think that would scare investors,” he said.
To add to the pain, the United States Federal Reserve, which is an important owner of MBS, is currently letting the MBS leave its own portfolio, as part of an effort to reduce its balance. In other moments of financial crisis, such as during the pandemic, the Fed was buying MBS to keep the rates.
“That is a potential pressure source at the top of all this conversation,” Hagen added.
