Is China About to Crash the Housing Market! My Take on Rising Mortgage Rates

Breaking News: Housing Market Doomed?

Alright folks Zuck here and I've got my finger on the pulse of well everything. Lately I've been hearing a lot of chatter about mortgage rates going bonkers. Apparently everyone's dumping U.S. Treasury bonds faster than I can change my mind about the Metaverse. And you know what that means: housing market headaches.

The China Connection: A Global Game of Chicken

Now some people are pointing fingers at foreign countries suggesting they're selling off bonds in retaliation for Trump's tariffs. 'Move fast and break things,' right? But the real kicker is what happens if China the sleeping dragon of MBS (Mortgage Backed Securities) decides to unload their stash in response to our trade policies? If they do it could be like adding gasoline to a dumpster fire. As Guy Cecala from Inside Mortgage Finance said 'If China wanted to hit us hard they could unload treasuries. Is that a threat? Sure it is.' Sounds like a high stakes game of global chicken to me.

Mortgage Mayhem: More Than Just China

Let's be real it's not just China we have to worry about. Japan Taiwan and Canada are also sitting on sizable piles of MBS. If they all start selling mortgage rates are going to skyrocket higher than my approval rating after a Senate hearing. And trust me that's saying something.

Spreads are Widening: Brace Yourselves

Eric Hagen at BTIG put it nicely: 'Most investors are concerned that mortgage spreads would widen in response to either China Japan or Canada coming in with a retaliatory objective.' Translation: higher mortgage rates. And just when the spring housing market was already wobbling thanks to high prices and shaky consumer confidence. Feels like we're all stuck in a perpetual state of 'move fast and break things,' except this time it's our wallets that are breaking.

Stock Market Blues: Another Nail in the Coffin?

Speaking of shaky confidence a recent Redfin survey revealed that 1 in 5 potential buyers are selling stock to finance their down payments. Given the recent stock market rollercoaster people are understandably jittery. Selling MBS by foreign entities could scare investors and nobody likes being spooked. Except maybe on Halloween in the Metaverse.

The Fed's Gone Fishing: No More Life Rafts?

And here's the cherry on top: the U.S. Federal Reserve is shrinking its balance sheet. During the pandemic they were busy buying MBS to keep rates down like some kind of financial superhero. But now? They're letting those MBS roll off their portfolio adding even more pressure to the situation. It's like they're saying 'You guys are on your own!' Thanks Fed. Really appreciate it.