Mortgage Rates Plunge Amid Trade War Chaos—But the Relief May Be Brief

The US housing market, long battered by sky-high mortgage rates and stubborn home prices, got a rare jolt of good news in early April 2025. President Donald Trump's sweeping tariffs, announced on 2 April, sent investors scurrying to safe-haven Treasury bonds, driving yields down and dragging mortgage rates along with them.

By 4 April 2025, the 30-year fixed rate had tumbled to 6.61%, a low not seen since October 2024, per Mortgage Bankers Association data. For a nation where the median home price hovering at £359,000 ($460,000), this drop feels like a lifeline.

But don't pop the champagne just yet: experts warn this relief could vanish faster than a bargain at a Boxing Day sale, thanks to the same trade war that sparked it.

A Tariff Tempest: Rates Fall, Markets Tremble

Trump's tariff blitz, slapping a 10% levy on all imports and steeper taxes on 60-odd countries, was meant to flex American muscle. Instead, it rattled global markets, with the Dow Jones plunging 2,000 points by 4 April 2025.

Investors, spooked by fears of a tariff-driven recession, piled into 10-year Treasury bonds, pushing yields below 4% for the first time since October 2024. Since mortgage rates track these yields, the result was instant: borrowing costs eased, and applications soared 20% in a week, hitting a September 2024 peak.

'Both homebuyers and refinance borrowers were quick to take advantage of this dip in rates,' said Joel Kan, MBA Vice President.

Yet, this silver lining comes with a cloud. The housing market was already limping into 2025, chilled by rates that topped 7% in January. High borrowing costs had locked homeowners into their low-rate mortgages, slashing inventory and keeping prices painfully out of reach. A brief thaw seemed possible, but the trade war's chaos could rewrite the script.

Inflation's Sting: A Short-Lived Respite?

Here's the catch: tariffs don't just lower rates, they also hike costs. Analysts at Goldman Sachs warn that disrupted supply chains could fuel inflation, nudging it from 2.4% to 3.5% by year-end 2025.

For buyers already stretched thin, that's a gut punch. The Federal Reserve, which cut rates three times in 2024, might pause its scissors if inflation spikes. Higher yields would follow, and mortgage rates could climb back toward 7%, snuffing out this fleeting relief.

Buyers Beware: Opportunity or Trap?

For now, the rate drop is a siren call. Refinance applications hit a six-month high by 4 April 2025, and purchase demand leapt 24% year-over-year, the strongest since January 2024. Yet, experts urge caution. 'Mortgage rates are set to drop further as Trump's trade taxes fuel economic uncertainty,' predicts BBC News, citing lenders like TSB Bank slashing rates by up to 0.25 points on 8 April 2025.

But if tariffs spark a recession, as 35% of Goldman Sachs economists now fear, lower rates might not lure buyers off the sidelines. The US housing market, short 4.5 million homes per Zillow, won't fix its supply woes overnight. Tariffs could slow construction further, especially if labour cools alongside the economy.

For others, watching from afar, the ripples are real: a US slowdown could dampen global growth, nudging global rates down too. As of 10 April 2025, this chaos is a double-edged sword, offering a fleeting chance to lock in a deal, or a trap for the unwary.