Are we heading towards a recession? Recent data reveals that 42% of mortgage refinance applications are being denied, marking a record high. The private sector debt is approximately $30.5 trillion, with about $18 trillion associated with household obligations such as mortgages and credit cards, amounting to near national debt levels, but with significantly higher interest rates.

What’s more, the resumption of student loan repayments is anticipated to create further financial strain on households as COVID-related payment deferrals conclude.

Are We in a Recession or Heading Towards One?

The U.S. housing market appears increasingly dominated by foreign investors, particularly from China, who are selling off U.S. mortgage bonds, leading to rising mortgage rates. At the start of the year, nearly $1.32 trillion in mortgage-backed securities were held by foreign entities, but this is decreasing as foreign stakeholders pull back, particularly China which has diminished its holdings by nearly 20% as of December 2024.

“The housing market is insane. Why would I buy a home that has increased +212% over the past seven years? It seems logical to wait for price and rate reductions.”
— Ethan (@EZebroni) April 6, 2025

The Federal Reserve’s exit from the mortgage-backed securities market has injected additional strain into the housing sector, which had remained stable during the pandemic.

Homebuyers Feel the Squeeze

Purchasers are grappling with escalating mortgage rates during what is typically a bustling spring buying season. High property prices combined with consumer anxiety regarding job stability have dampened buyer enthusiasm. According to a Redfin survey, 1 in 5 potential homebuyers is liquidating stocks to meet down payment requirements, showcasing the tightening finances. Furthermore, rejection rates for mortgage refinances and auto loans have surged to unprecedented heights.

What’s Ahead for the Housing Market?

The increasing mortgage rates alongside soaring consumer debt, foreign dispossession of U.S. bonds, and the reduction in purchasing power are tightening the grip on the housing market. Should foreign investors continue to divest from U.S. bonds, pressure on rates could continue, suffocating buyer opportunities and suppressing market activity. While the Fed’s long-term strategy may ultimately bring stability, immediate relief does not seem forthcoming. In essence, a recession in the U.S. remains a plausible scenario.

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Key Takeaways

• Are we heading for a recession? 42% of mortgage refinance applications are being denied, the highest in history.
• Foreign creditors, predominantly from China, are selling U.S. mortgage bonds, adding uncertainty to rising mortgage rates.