Are we going into a recession? 42% of mortgage refinance applications are being rejected, the most in history.
Additionally, private sector debt is ~$30.5T, and $18T of that is household debt (mortgage, car, credit card, HELOC). That’s nearly as high as the national debt, carrying much higher interest rates, and the private sector can’t print money or levy taxes.
Oh, and the student loan repayments are about to resume at much higher levels after COVID loan debt deferment payments wear off. Is the U.S. screwed?
Are We in a Recession or Headed Towards One?
In addition to the debt, the housing market is out of the hands of U.S. buyers and in the hands of China.
Foreign creditors, led by China, are dumping U.S. mortgage bonds, injecting new anxiety into surging mortgage rates. Nearly $1.32 trillion in U.S. mortgage-backed securities were in foreign hands at the year’s start, but the tide is receding fast. China alone slashed its stake by almost 20% by December 2024, while Japan and Canada have hit the brakes on fresh buys.
The housing market is insane.
Why would I buy a home that has increased +212% in the last 7 years?
I feel like it makes sense to wait for prices and rates to drop.
Am I wrong? pic.twitter.com/3H9Iod4Xiv
— Ethan (@EZebroni) April 6, 2025
The Federal Reserve’s retreat from the mortgage-backed securities market is throwing another wrench into the housing sector. Once a stabilizing force in crises like the pandemic, the Fed is now letting these assets bleed off its books, adding weight to an already strained market.
Mortgage analyst Eric Hagen called it what it is: “another layer of pressure.”
Homebuyers Feel the Squeeze
The rising rates are hitting homebuyers especially hard during what should be a busy spring housing market. High home prices, coupled with consumer fears over job security and weak savings accounts, have already dampened buyer optimism.
A survey from Redfin found that 1 in 5 potential buyers is selling stocks to fund down payments, showing just how tight personal finances have become. Additionally, loan rejection rates have hit record highs for mortgage refinances and auto loans.
What’s Ahead for the Housing Market?
Rising mortgage rates, increased consumer debt, foreign sell-offs in MBS, and shrinking buying power are tightening the noose on the housing market. If foreign investors keep dumping U.S. bonds, rates could easily edge higher, squeezing buyers and dragging market activity into the ground.
The Fed’s long-game strategy might stabilize things later but immediate relief isn’t in the cards. In other words, a recession in the U.S. is still on the table.
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Key Takeaways
- Are we going into a recession? 42% of mortgage refinance applications are being rejected, the most in history.
- Foreign creditors, led by China, are dumping U.S. mortgage bonds, injecting new anxiety into surging mortgage rates.
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