Trade drama, inflation signals, and Fed caution, oh my! All weighed heavily on the mortgage and housing sectors. President Trump extended his tariff campaign, imposing steep new duties on dozens of countries while finalizing trade deals with others, including the EU. Though these moves boosted certain exports, they rattled markets, potentially strained global alliances, and contributed to a weakened dollar and emerging-market rallies. The inflationary pass-through of tariffs has started to show up in data, with June’s core PCE rising 0.3 percent, one of the fastest monthly gains this year, while consumer spending stagnated. Treasury yields fell late in the week thanks to solid auction demand, even as macro uncertainty clouded the outlook.
The Fed, meanwhile, held rates steady at 4.25 to 4.5 percent amid mixed signals and political pressure. Despite dissent from Trump-appointed governors, Chair Powell maintained a hawkish tone, suggesting the economy isn’t currently constrained by policy. Odds of a September cut dropped sharply to near 50/50 after the report. However, the July jobs report came in far below expectations at 73k. There was also a massive downward revision of 258k jobs over the prior two months, the sharpest since early COVID, alongside a spike in unemployment to 4.2 percent. Markets reacted swiftly, with the 10-year Treasury yield dropping and rate cut odds for September surging from 40 percent to nearly 90 percent, reigniting investor optimism and long-duration bond rallies. For the mortgage industry, the soft labor data and falling yields offers a much-needed reprieve, signaling lower rate potential ahead, though all eyes now turn to upcoming inflation prints.
On the housing side, the effects of high rates and economic jitters were increasingly visible. Pending home sales dipped again, led by declines in the South, West, and Midwest, while existing home sales fell to a ten-month low. Price growth slowed nationally, though some Northeast markets remained hot. Agency loan sizes stayed elevated, with Florida and D.C. among the few markets seeing noticeable declines. Inventory rose, including a spike in new home supply (particularly in the South) now back to pre-2008 levels. This shift may ease affordability pressures but also reflects buyer hesitation in the face of macro headwinds and ongoing rate volatility.
Mortgage rates declined modestly for the second straight week, with the 30-year fixed at 6.72 percent. Still, affordability remains a concern, and refinancing picked up slightly amid falling rates. Issuance is strong, $100B+ month-to-date for the third straight month, but expected to fall short of June’s recent peak. Prepayment speeds are rising, helped by more business days and mild refi activity. Meanwhile, Fannie Mae reported another profitable quarter, with $3.3B in net income driven by guaranty fees.
Looking ahead, all eyes are on upcoming inflation and employment reports to gauge whether a September Fed pivot is plausible. In the meantime, the housing market continues to grapple with rate-induced paralysis, rising inventory, and growing economic anxiety, fueled in part by tariff policy, political noise, and a shifting Fed posture.