Tariffs, Volatility & Mortgage Market Whiplash
The Trump administration’s aggressive tariff announcements sent global equity and bond markets into a tailspin, driving the CNN Fear & Greed Index down to a 4. We are now at levels not seen since the Great Financial Crisis or the shock of COVID. While the current backdrop may not be as severe, investor panic is evident. Since World War II, global growth has relied on comparative economics — countries focusing on what they produce best and trading for the rest. But persistent U.S. trade deficits have led this administration to push for a more level playing field, targeting tariffs and VAT-related pricing disadvantages overseas. The scale of the proposals, however, rattled bond markets and led to a temporary pullback in policy.
Mortgage rates dipped briefly as the 10-year Treasury yield touched below 4%, but that rally was short-lived. The reversal wasn’t driven by inflation data — CPI and PPI came in cooler than expected — but rather by fears of tariff-induced inflation. Manufacturers are now in a bind and consumer confidence is weakening, which makes passing on higher input costs difficult. As a result, we face potential margin compression, weaker earnings, and continued market volatility.
One bright spot for consumers: oil has dropped below $60/barrel, easing some cost-of-living pressures. And while equity markets have pulled back roughly 10% from recent highs, this correction may be a healthy repricing after an extended period of overvaluation.
In the housing market, expect:
- Price adjustments as buyers grow more cautious
- Cash-out refinances by self-employed borrowers seeking liquidity
- Tighter underwriting as lenders brace for inflation, recession risk, and asset repricing
- More loan applications moving to the non-QM or private credit space due to tightened credit box by big banks (bank statement loans, no-income verification loans, DSCR loans, bridge loans).
On the interest rate front, Wall Street is split — from zero to four cuts forecasted this year. Based on borrower sentiment and softening labor trends, we believe the Fed may deliver 1–2 rate cuts. Consumers are watching their wallets, and business owners are becoming more defensive.
If the Fed does ease later this year, it could bring much-needed relief to mortgage rates — a welcomed boost for the housing sector.
