By Judy Obae
• China may dump U.S. mortgage bonds for gold and Bitcoin
• Mortgage rates could surge and worsen the housing crisis
Foreign investment particularly from China has played a stabilizing role in the U.S. housing finance system by propping up demand for mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac, and Ginnie Mae. But recent shifts suggest Beijing may be pulling back. Early indicators point to China reallocating capital into hard assets like gold and decentralized stores of value like Bitcoin. With China holding a significant amount of an estimated $1.3 trillion in U.S. MBS, this potential sell-off could have massive ripple effects on American mortgage rates and housing affordability at a time when the market is already strained.
Why This Matters: Foreign demand for agency MBS has long helped suppress borrowing costs and maintain liquidity in the U.S. housing market. These securities, backed by home loans and implicitly guaranteed by the U.S. government, are considered a relatively safe investment. China, alongside just two other nations—accounts for the bulk of the foreign-held billions in MBS and if it continues to redirect its reserves toward assets like gold and Bitcoin, the vacuum left behind could cause borrowing costs to rise sharply.
This matters most for American homebuyers. A staggering 74.9% of U.S. households or roughly 100.6 million families cannot afford a median-priced new home at the current 6.5% mortgage rate. If MBS yields rise due to foreign liquidation, mortgage rates could spike even further, pricing out millions more. Moreover, foreign investors like China have indirectly supported inflated home prices by sustaining demand for mortgage credit. A sudden withdrawal could do more than just raise interest rates—it could jolt market confidence. Homebuilders, developers, and homeowners alike could face falling asset values even as financing becomes more expensive. This rare combination of tightening credit and declining prices would place further pressure on an already fragile housing sector, widening the affordability gap.
What Next: If China accelerates its exit from U.S. MBS, the Federal Reserve may be forced to absorb more of the market to avoid a rate shock. However, with inflation still a concern, this maneuver could be politically and economically constrained. American policymakers may also face mounting pressure to bolster domestic MBS demand or incentivize institutional investment. Either way, homebuyers should brace for more volatility ahead.
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