Weekly Mortgage Rates Drop as Tariffs Rattle Markets

Mortgage rates experienced what President Trump characterized as a “big, beautiful drop” this week in his speech to Congress. The average rate on the 30-year fixed-rate mortgage fell 14 basis points to 6.51% the week ending Mar. 6, according to rates provided to SS by Zillow. A basis point is one one-hundredth of a percentage point.

There’s no denying that mortgage rates are lower. In fact, this is the third week running that we’ve seen lower average rates not just on 30-year loans, but also on 15-year fixed and 5-year adjustable rate mortgages. But what’s been driving down mortgage rates isn’t good news for the housing market.

Tariffs were among the biggest headline makers this week. Levies on Chinese goods were increased, and tariffs on products from Mexico and Canada were rolled out only to be reversed within days. (Duties on Mexican and Canadian imports are now set to begin in April.) Mortgage rates went down as markets fought whiplash. But in the longer run, tariffs could make homes even more expensive than they already are.

These policy changes rippled out to mortgage rates as markets grappled with fears of a trade war. After the tariffs rolled out, Canada and China quickly announced retaliatory measures. Major U.S. retailers like Target and Walmart have already given warnings that some goods’ prices are likely to rise.

U.S. markets took this news pretty badly, with stocks falling as investors tried to sort out the implications. As investors shed stocks, many picked up bonds — a phenomenon known as a flight to safety. The idea is that when stocks are unpredictable, investors can protect themselves by moving money into less risky assets, like bonds.

Mortgage rates tend to move alongside bonds, because mortgages are packaged into similar investments. On the secondary market, home loans are bundled into mortgage-backed securities. Because they’re made of long-term loans, MBS work a lot like bonds and attract the same buyers.

When there’s a robust market for bonds, there are usually plenty of buyers for MBS, too. It’s an environment that’s highly supportive of lower mortgage interest rates, and that’s very much what we saw this week.

In the short term, we’re seeing lower mortgage rates as a downstream effect of Trump’s tariffs — though rattled markets and higher grocery bills may be a steep price to pay for half a percentage point. But longer term, tariffs could have even more profound effects on the housing market.

Tariff news has been met with considerable alarm by home builders. Canada is the United States’ main trading partner for lumber; Mexico is our go-to for gypsum, which is used in drywall. Estimates of how much tariffs could add to the cost of new construction homes are substantial.

Real estate data company CoreLogic puts the tariff price premium at $17,000 to $22,000. The National Association of Home Builders cites a lower figure of $7,500 to $10,000. But the NAHB also estimates that even a $1,000 rise in the cost of a new construction home would be enough to price out approximately 116,000 households.