Could China Tank the Housing Market?

There is only one word to summarize this past week: Brutal. 

We just witnessed the biggest week-over-week move in mortgage rates since the 1980s—yeah, is what that bad. 

So, what the heck happened, and where do we go from here? We’re about to break it all down. It might feel like a lot, but hang in there—this is crucial info that every real estate professional needs to understand.

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Read time: ~5 minutes

Rates ended HIGHER compared to last week, and volatility was VERY HIGH. Rates are in the low 7 range for most loan types without paying discount points. Paying discount points can get you in the high to mid 6's.

Bond Market Melts, Pushing Rates Higher 🚀

This past week has been, without a doubt, one of the toughest we’ve seen in our 16 years in the industry.

If you know us, you know Nick and I are self-proclaimed mortgage nerds—borderline obsessed with understanding the “why” behind every market move. We love the data, especially when it helps us better understand what’s happening in our industry.

What made last week especially frustrating? No one really knows what lit the match. Even seasoned market experts are split on what exactly triggered the bond market chaos. Mortgage rates spiked hard and fast, and uncertainty followed. Nick and I pulled together the most likely culprits behind the chaos:

• Trade War & Tariff Tensions:  Tariffs drive up the cost of imported goods, fueling inflation. And when inflation ticks up, it becomes harder for the Fed to justify cutting rates—which keeps mortgage rates higher. Rising inflation fears could be a big part of the current rate pressure.

• Foreign Demand at Risk:  There’s growing concern that countries like China and Japan—major holders of U.S. debt—might scale back on buying Treasurys. Less demand means higher yields, and that pushes mortgage rates up. If countries start dump our bonds, mortgage rates could rise even more.

• Hedge Fund Unwinding:  A major hedge fund was reportedly forced to unwind complex trades, triggering a wave of Treasury bond selling that pushed bond prices down and mortgage rates up.

Chances are, it wasn’t just one of these factors—but a combination of all three—that sparked the spike. And as long as these forces stay in play, we should expect more volatility ahead.

Could China Tank the Housing Market?

As the bond market took a beating Wednesday night, rumors swirled that China was dumping U.S. Treasury bonds—a move that could seriously impact mortgage rates. While it turns out the real trigger was a Japanese hedge fund caught in a bad trade and forced to liquidate U.S. Treasuries, the market’s reaction raised a very real “what if”: What happens if China does decide to sell?

Here’s why it matters to us: China is one of the largest holders of U.S. Treasury bonds (government debt). If they dumped a significant chunk of their Treasury holdings all at once, it would flood the market with supply. And basic economics tells us—when supply goes up, prices fall. In the bond world, falling prices mean rising yields... and rising yields mean higher mortgage rates.

The 10-year Treasury bond is especially important because it heavily influences mortgage rates. So, if China were to start dumping their Treasury bonds, even temporarily, it could cause rates to spike fast—adding real pressure to our housing market.

Now, realistically, China could only do this for so long. Their Treasury holdings are large, but not unlimited. Even a 3–6 month selloff would eventually run its course, but the damage during that stretch could be significant.

Is the Fed Coming to the Rescue Again?!

Nick and I were talking this week about how today’s market chaos feels oddly familiar—almost like déjà vu from March 2020. At the start of the COVID crisis, financial markets were in full-blown panic mode. Stocks were crashing, and mortgage rates were spiking—exactly the kind of upside-down behavior we’re experiencing right now! Typically, when the stock market tanks, mortgage rates drop. But during that period (and now), the opposite happened.

In response to the chaos in 2020, the Fed stepped in and took aggressive action:

• On March 15, 2020, the Fed announced it would buy at least $500 billion in Treasuries and $200 billion in mortgage-backed securities (MBS) to stabilize the market.

• Then, on March 23, they went all-in—committing to purchase unlimited amounts of Treasuries and MBS as needed to keep markets functioning smoothly.

That unprecedented round of quantitative easing (QE) was a major move to restore confidence and keep credit flowing during one of the most uncertain economic moments in history. It also led to mortgage rates dropping to historic lows. The chart below shows just how dramatically rates dropped from March through December 2020:

So Should the Fed Step In??

There's a growing debate right now over whether the Fed should step in to calm the markets. And honestly—selfishly—we’d love to see it happen if it helps stop the bleeding and bring mortgage rates down. The last time they fired up the money printer in 2020, mortgage rates dropped to all-time lows.

But this time around, it’s not so simple. Here’s why the Fed might hold off (at least for now):

• Inflation Is Still Sticky: Unlike 2020, inflation remains above the Fed’s 2% target. Injecting more liquidity into the system through QE could reignite inflation and undo a lot of the progress they’ve made.

• No Full-Blown Crisis (Yet): Yes, the bond market is volatile—but it hasn’t completely broken down. Credit markets are still functioning. The Fed usually waits until something truly snaps before stepping in with major interventions.

• QE Isn’t Without Risk: Jumping back into QE could hurt the Fed’s credibility, inflate new asset bubbles, and make it even harder to control inflation down the line.

What’s Our Take?

The Fed is likely to stay on the sidelines for now. They’ll keep a close eye on market conditions, and if things turn into true crisis territory, then yes—some form of intervention could happen. But another “unlimited QE” moment like 2020? That’s a recipe for disaster with inflation still in the mix and should be avoided at all cost.

Instagram Reels from the Week

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