Dan Seiffert SVP, Accounting | realtors.com
A recent sell-off in major tech stocks, driven by the emergence of Chinese AI company DeepSeek, may offer slight relief for mortgage rates. The Nasdaq composite index fell nearly 3% on Monday, with Nvidia's shares dropping 17%, resulting in a significant decrease in the company's market capitalization.
As investors sought safer assets, bond prices increased, causing yields on 10-year Treasury notes to fall by nearly 10 basis points. Mortgage rates often follow long-term bond yields, suggesting potential modest relief for homebuyers on new applications.
According to Freddie Mac, last week's average rate for 30-year fixed home loans was 6.96%. Monday's stock decline could lower this average slightly or at least prevent it from rising above 7%.
Realtor.com Chief Economist Danielle Hale stated, "Mortgage rates, which are affected by factors that influence the 10-year, are likely to fall this week in the widely tracked Freddie Mac index." She added that while current home shoppers might benefit from this temporary reprieve, lasting mortgage rate relief would require broader economic stability and improved inflation.
DeepSeek recently introduced R1, an open-source AI product rivaling OpenAI's models but reportedly developed at a much lower cost. Despite U.S. export bans on advanced chips needed for AI products like those from OpenAI and its competitors, DeepSeek managed to acquire several thousand Nvidia chips legally before new export controls were fully implemented.
The launch of DeepSeek's app followed President Donald Trump's announcement of a $500 billion AI infrastructure venture with OpenAI and other companies. This development raised concerns about excessive capital investments by U.S. tech firms in AI and their vulnerability to disruption.
Despite the initial sell-off impact being potentially short-lived—tech stocks began recovering some losses on Tuesday—Wedbush analyst Dan Ives described it as a "buying opportunity," questioning DeepSeek's claim of a $6 million startup budget as "likely a fictional story."
Federal Reserve policymakers are expected to announce their latest interest rate policy soon. Bond markets anticipate a high likelihood that the Fed will maintain its current policy rate between 4.25% and 4.5%. If unchanged, there will be minimal effect on mortgage rates; however, any unexpected cut could drive them lower.
Fed Chair Jerome Powell's comments and projections from other policymakers following the meeting hold significant potential to influence future rate movements. The Federal Reserve typically focuses on economic growth metrics rather than reacting directly to stock market fluctuations unless they pose an imminent threat to the broader economy.
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