A global market analysis by Ginnie Mae reveals that foreign countries, including China, hold over $1.32 trillion in U.S. mortgage-backed securities (MBS). If Chinese institutions were to sell off these assets and other countries follow suit, it could lead to a ripple effect through global financial markets.
China’s central bank maintains the value of its currency, the renminbi, relative to the U.S. dollar by purchasing U.S. debt. This helps keep prices competitive for Chinese exports. However, an escalating trade war has increased uncertainty, and China may be willing to absorb losses if it sells off some of its MBS.
A sell-off would lead to lower prices for MBS, causing mortgage rates to rise in the U.S. This would negatively impact homebuyers, especially those with variable-rate mortgages, as higher rates could increase their monthly payments and make refinancing less attractive.
Higher mortgage rates may also lead to a reduction in demand, lower housing prices, and tighter lending standards. Homeowners may face higher debt-to-income ratios, making it harder to qualify for loans.
In the meantime, experts advise building up an emergency fund to prepare for potential cost increases. As interest rates rise, homebuyers should secure mortgage pre-approvals and lock in good rates if possible. First-time homebuyers may be able to explore FHA loan options.
While some buyers might wait out economic turmoil, others may need to adjust their strategies, such as lowering asking prices or offering incentives to attract buyers.
Source: https://moneywise.com/mortgages/mortgage-rates/is-that-a-threat-sure-it-is-china-could-make-a-retaliatory-move-that-experts-say-would-hit-us-hard-especially-us-homeowners