Mortgage Rates Climb Slightly After US-China Trade Agreement

As of Today, May 12, 2025, mortgage rates are a bit higher, currently hovering around the high 6% range, with the average for a 30-year fixed loan sitting at approximately 6.80%. This uptick is largely a ripple effect of the recently announced temporary trade deal between the United States and China. While this news has been welcomed by investors who see it as a potential shield against a deeper economic downturn, the resulting shift towards riskier assets has softened demand for bonds, consequently nudging mortgage rates upwards.

Mortgage Rates Climb Slightly After US-China Trade Agreement

It feels like just yesterday we were holding our breath, wondering what the escalating trade tensions would mean for our wallets and the broader economy. The prospect of sky-high tariffs, like that staggering 145% figure being thrown around, was enough to make anyone anxious about the future of business and the flow of goods. So, the news over the weekend that the U.S. and China have agreed to a temporary truce, bringing the tariff rate down to a more manageable 30% for the next 90 days, was a breath of fresh air for many.

The immediate reaction in the market was palpable. Investors, seemingly relieved at the potential avoidance of a severe economic slump, shifted their focus towards riskier investments. This “risk-on” sentiment, while positive for certain sectors, has had a direct impact on the bond market.

You see, when investors feel more confident, they tend to move away from the safety of bonds, leading to lower demand and, consequently, higher yields. And since mortgage rates tend to move in tandem with the 10-year Treasury yield, this upward pressure on bond yields has translated to slightly higher mortgage rates for us folks looking to buy or refinance a home.

To give you a clearer picture, here's a snapshot of the average mortgage rates across different loan types as of today, based on data from Zillow:

Current Mortgage Rates Overview

Mortgage Type	Average Rate (%)
30-Year Fixed Mortgage	6.80%
20-Year Fixed Mortgage	6.19%
15-Year Fixed Mortgage	6.08%
7/1 ARM Mortgage	7.39%
5/1 ARM Mortgage	7.06%
30-Year FHA	5.95%
30-Year VA	6.36%

As you can see, while the increase isn't dramatic, it's certainly something to be aware of. I remember when rates were significantly lower, and the urgency to lock in a good deal was intense. Now, it feels like we're in a bit of a holding pattern.

The Risk-On Effect and Its Impact on Mortgage Rates

Looking back at the data, the 10-year bond yield has indeed seen a notable increase – around 20 basis points higher than before the recent flurry of trade deal announcements. We first saw a bit of a jump after the UK trade deal on May 8th, and then the China deal today added to that upward momentum. This correlation between bond yields and mortgage rates is a fundamental aspect of how the housing market operates.

However, there's a bit of a silver lining here. Despite the rise in bond yields, the spread – the difference between mortgage rates and those yields – has actually improved. This means that some of the upward pressure we might have expected on mortgage rates due to higher bond yields has been somewhat offset. It's like a shock absorber, preventing rates from climbing too sharply. So, while we have seen a moderate increase, it hasn't been as drastic as it could have been based solely on the bond market movements.

A Period of Calm Before the Next Storm?

For the past week, the rate for a 30-year fixed mortgage has remained relatively stable, hovering around that 6.80% mark. It seems the market is taking this trade news as a return to a sort of normalcy, neither overwhelmingly positive nor negative for mortgage rates. It's like everyone is taking a collective deep breath.

However, I can't shake the feeling that this calmness might be temporary. This China trade deal is, after all, only a 90-day pause. It won't be long before the questions about what happens next start swirling again. Will the deal be extended? Will a more permanent agreement be reached? Or will we find ourselves back in the thick of trade tensions? This uncertainty could very well keep interest rates relatively flat for the remainder of the second quarter as investors adopt a wait-and-see approach.

With the immediate pressure of trade disputes easing, the economic data will once again take center stage. This means those reports that usually matter for mortgage rates, like the jobs report and the Consumer Price Index (CPI), will regain their influence in dictating where rates might head next. Speaking of the CPI, the report due out tomorrow will be particularly interesting to watch as it will give us a fresh look at the inflation situation.

But there's a potential wrinkle in all of this. The past couple of months have been anything but ordinary due to the trade uncertainties. This could lead to some unusual readings in the upcoming economic data. Will we see a spike in inflation because of previous supply chain disruptions? Could we see an increase in unemployment?

Economists will be poring over these numbers, trying to determine if these are temporary trade-related anomalies or signs of a more significant shift in the economic landscape. And, of course, everyone will be watching how the Federal Reserve, under Jerome Powell, interprets this data as it unfolds.

It's quite possible that these uncertainties could delay any anticipated policy decisions from the Fed. They might want to see a clearer, more consistent picture emerge before making any significant moves. This too could contribute to stubbornly stable mortgage rates for the next few months, which is a crucial time of year for home buying activity.

This period of relatively flat rates will also likely dampen refinance activity. Especially for those who recently bought homes, the math for a rate and term refinance – where you lower your interest rate and potentially change your loan term – becomes much harder to make work when rates aren't significantly lower.

Why Mortgage Rates Could Still Trend Lower Later This Year

Despite this current holding pattern, I still believe there's a possibility that mortgage rates could gradually ease as the year progresses. One significant headwind – the intense trade tensions – has, for now, been alleviated thanks to this temporary deal.

It's crucial to remember that “temporary” part, though. If these trade issues resurface in a few months, they could easily put upward pressure back on rates. However, in the meantime, we might see mortgage spreads improve further, and rates could slowly tick downwards as new economic data comes in each month, provided that data doesn't paint an overly inflationary picture.

But even with the trade truce, we might still see some resistance to lower rates through the summer as caution prevails and other factors, like the ongoing discussions around government spending, come into play. It feels like we're navigating a complex maze of economic indicators and geopolitical events.

If we do eventually reach a permanent agreement with China and put this particular source of uncertainty behind us, then the fundamental economic data will once again be the primary driver of mortgage rates.

It's worth remembering that even before the trade war escalated, there were clear signs that the economy was starting to cool down. If those cooling trends continue throughout this year, it could lead to lower interest rates across the board, including mortgage rates. All else being equal, a slowing economy typically translates to lower rates.

Perhaps even more importantly, a stable trade relationship would allow the Federal Reserve to focus squarely on its mandate of maintaining full employment and price stability, without the added complication of unpredictable trade policy impacts. This could pave the way for the Fed to consider interest rate cuts if the economic data warrants them, without hesitating due to potential trade-related fallout. It's like removing one major obstacle in their path.

So, when I look at the overall picture, I see a couple of potential positives for mortgage rates: the easing of trade tensions (even if temporary) and the possibility of tighter mortgage spreads. Ideally, we'd see a gradual economic cooling that avoids a full-blown recession. Of course, the large government spending bill still looms as a potential concern.

What I anticipate is a scenario where the Fed might eventually resume cutting interest rates, much like we saw in August and September of last year. This could very well be preceded by a gradual decline in mortgage rates, potentially bringing us closer to some of the forecasts for 2025, including my own general expectation of the 30-year fixed mortgage rate moving closer to the 6% mark by the end of the year.

Expert Outlook: Fannie Mae and Freddie Mac Weigh In

It's always helpful to look at what the big players in the mortgage industry are predicting. According to Fannie Mae's latest forecast, they anticipate mortgage rates to end 2025 at around 6.2% and then fall slightly further to 6.0% in 2026. This is a downward revision from their previous forecast, suggesting they also see potential for rates to ease.

They note that while economic growth might be softening, the lingering impact of past tariffs could lead the Federal Reserve to take a cautious, “wait-and-see” approach to interest rate cuts. They currently project only one rate cut in September of this year, followed by two more in 2026, acknowledging that there are both upside and downside risks to this outlook.

Freddie Mac's Housing and Mortgage Market Outlook paints a slightly different picture of the recent past, noting that mortgage rates remained higher than many expected in 2024. Looking ahead to 2025, their prevailing sentiment is that rates might stay higher for longer than initially anticipated.

They suggest this could prompt both buyers and sellers who might have been waiting for lower rates to become more active in the market sooner, potentially leading to an increase in home sales compared to last year, although still likely below historical averages. They also expect the “rate lock-in effect” – where homeowners with very low mortgage rates are hesitant to sell – to gradually cool off as mortgage balances amortize.

Interestingly, Freddie Mac anticipates a moderation in the pace of house price appreciation in 2025, while still expecting positive growth. This, combined with potentially higher home sales and slightly lower mortgage rates compared to last year, is expected to boost total mortgage origination volumes in 2025, suggesting a more promising outlook for the industry as a whole.

Navigating the Current Mortgage Market

So, where does all of this leave us? As of today, May 12, 2025, mortgage rates are moderately higher in response to the temporary U.S.-China trade deal. While this news has eased concerns about a significant economic downturn, it has led to a shift in investor sentiment that has nudged bond yields and, consequently, mortgage rates upwards.

However, this increase hasn't been dramatic, thanks to improving mortgage spreads. The market seems to be in a period of digestion, with rates remaining relatively flat for the time being. The future direction of mortgage rates will likely depend heavily on upcoming economic data releases and how the Federal Reserve interprets that data, especially in light of the unusual economic conditions created by past trade uncertainties.

While the temporary nature of the China trade deal introduces an element of uncertainty, there are reasons to believe that mortgage rates could still trend lower as the year progresses. These include the potential for further improvement in mortgage spreads and the possibility of a cooling economy prompting the Federal Reserve to consider interest rate cuts.

For those of us navigating the housing market, whether as potential buyers, sellers, or those considering refinancing, staying informed about these economic dynamics is more crucial than ever. It feels like we're in a period where patience and careful observation will be key to making the right financial decisions.