Could China Shake the U.S. Housing Market? Here's What You Need to Know
- Neil Caron
- 6 days ago
- 2 min read
RSL Market Insight
Rising mortgage rates and global tensions are creating fresh uncertainty for the U.S. housing market — and a big piece of the puzzle is China’s role in the bond market.
Mortgage rates are trending upward as investors sell off U.S. Treasury bonds. Analysts warn that if China ramps up financial retaliation in response to new U.S. tariffs, the impact could be even greater. This matters because mortgage rates are closely tied to the yield on the 10-year Treasury — and when yields rise, so do borrowing costs.
However, a more significant concern is China’s role in the mortgage-backed securities (MBS) market. China, along with Japan, Taiwan, and Canada, holds over $1.3 trillion in U.S. agency MBS — about 15% of all outstanding securities.
“If China accelerates its sell-off of mortgage-backed securities, we could see spreads widen and mortgage rates rise more aggressively,” explains Neil Caron, Sales Manager at CMG Mortgage. “This kind of move doesn't just affect Wall Street — it directly impacts buyers on Main Street.”
📉 Why This Matters for Homebuyers and the Housing Market
Higher mortgage rates reduce affordability for first-time and move-up buyers
Uncertainty in foreign bond holdings increases volatility in mortgage pricing
Housing demand could cool, slowing home appreciation and refinancing activity
In fact, China has already been quietly reducing its exposure. Its MBS holdings were down nearly 9% year-over-year by fall 2024 — and down 20% by December. Japan followed suit. If more countries jump on this trend, mortgage rates could spike, creating tighter conditions for both buyers and investors.
“Even the possibility of a major foreign sell-off adds pressure to the bond markets,” Caron adds. “Lenders have to price in the unknown, which makes home loans more expensive across the board.”
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