Latest tariffs might lower mortgage rates, but also hamper homebuyers

President Trump’s extensive tariffs announcement Wednesday sent the 10-year Treasury yield down to its lowest level since last fall, all but promising lower mortgage rates for homebuyers — at least in the short term.

“What’s bad for the economy is good for mortgage rates,” says Melissa Cohn, regional vice president for William Raveis Mortgage. “I wake up in the morning knowing it’s going to be a good day for business and a bad day for my brokerage account.”

Since Trump took office again, more investors have turned to government bonds, a safer vehicle in times of uncertainty. This heightened demand has helped drive down the 10-year Treasury yield, from about 4.62 percent on Inauguration Day to about 4.19 percent just prior to the latest tariffs announcement. During the announcement, the yield yo-yoed up to 4.23 percent, but by this morning, it had dropped to around 4.03 percent.

The 10-year yield is a key indicator of mortgage borrowing costs, specifically 30-year fixed mortgage rates. Thirty-year rates historically have run 1.7 to 2 percentage points higher than the yield, but in recent years, that spread has stretched to 3 points.

So far this year, the 30-year rate has averaged 6.92 percent. It reached 6.67 percent on April 2, according to Bankrate’s weekly survey of lenders.

What’s bad for the economy is good for mortgage rates.

— Melissa Cohn Regional Vice President, William Raveis Mortgage

Lower rates have already made 2025 a more active borrowing year than last. This week, the Mortgage Bankers Association (MBA) reported the highest level of home purchase loan applications since the end of January.

“This is not a strong homebuying market so far this spring, but it’s better than last year, and you know last year was a little better than 2023,” says Mike Fratantoni, chief economist for the MBA. “We’re heading in the right direction and we think the combination of mortgage rates being a little bit lower and also the inventory of homes being a little bit higher is resulting in more homes for potential buyers to look at.”

Impact to inflation could hurt affordability

While mortgage rates should decline in the near term, tariffs could also ramp inflation back up, ultimately making it costlier to buy a home. The latest Consumer Price Index put overall inflation at 2.8 percent in February, and the shelter category remains stubbornly high.

“It’s just going to be a cloud on the housing market,” Fratantoni says.

Before this week’s announcement, a study by real estate data firm Cotality found that existing tariffs would increase new-home construction costs between 4 percent and 6 percent. New-construction makes up nearly half of the available inventory today, according to Peter Carroll, executive vice president of Public Policy and Industry Relations at Cotality. This accounts for a much higher percentage than typical. 

“It feels like we’re at some sort of tipping point where things are really tight,” Carroll says. “Not only in terms of affordability, but in terms of supply.”

A further increase in costs would come at an already difficult time to buy. Prospective homebuyers need an annual household income of nearly $117,000 to afford a typical home in the U.S., according to a Bankrate study released this week. The national median existing home price was $398,400 in February, according to the National Association of Realtors, up by 3.8 percent from this time last year.

Uncertainty for some homebuyers, opportunity for others

How the newest tariffs shift the economy remains to be seen, but experts speculate we could be heading for rough waters. If markets slow, so will job growth, which could make someone think twice about buying or selling their home. 

“The uncertainty for the homebuyer with respect to the job market or overall economy may leave them feeling just a bit less secure,” Fratantoni says. “I think buying a home really is an expression of confidence in your own financial future and your own security in your economic position.”

Yet, where there’s uncertainty, there’s also opportunity. Lower mortgage rates could make refinancing possible for homebuyers who purchased in the last two years, when rates were closer to 7 percent.

Further, an economic slowdown could free up more supply in certain areas. The combination of lower rates, higher inventory and tempered demand could give buyers a leg up, or at least start to shift the housing market in their favor.

“Everything’s this local supply and demand dynamic,” Carroll says. “Do your shopping, do your diligence.”