China may make a ‘retaliatory’ move that experts say will ‘hit' US homeowners 'hard.' Here's what's happening
However, some doubt this will happen.
Melissa Cohn of William Raveis Mortgage points out that such a move would hurt China’s financial interests by devaluing its holdings and destabilizing global currency markets. China typically benefits from keeping its currency, the renminbi (RMB), lower than the U.S. dollar to maintain export competitiveness.
Still, an escalating trade war has raised uncertainty — and a sell-off isn’t off the table if China is willing to absorb losses. China had already begun selling off some of its U.S. MBS last year. There’s speculation it’s continuing to do so.
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Read more: Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead
What does this mean for US homebuyers?
For U.S. homebuyers, the sell-off of mortgage-backed securities (MBS) could lead to higher mortgage rates — especially for those with variable-rate mortgages.
“Most investors are concerned that mortgage spreads would widen in response to either China, Japan or Canada coming in with a retaliatory objective,” Eric Hagen, mortgage and specialty finance analyst at BTIG, told CNBC
As rates rise, refinancing may become less attractive and some buyers could be priced out of the market. Higher rates could also decrease demand, causing housing prices to drop, while sellers may hold off until conditions improve. Additionally, lenders might tighten standards, increasing credit score requirements or down payments.
If you're planning to buy, securing a mortgage pre-approval and locking in a good rate now could be wise. First-time buyers might consider a Federal Housing Association loan, while sellers may need to adjust by lowering prices or offering incentives. Amid economic uncertainty, both buyers and sellers might also choose to wait it out.
In uncertain times, securing the lowest mortgage rate is more important than ever — whether you’re refinancing or applying for a new mortgage. Even a slight variation in rates can translate into substantial long-term savings.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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