Rates Up, Lock-In Down, Stocks Shrug

Bill McBride of Calculated Risk went through the FHFA's National Mortgage Database for Q2 2026. It covers closed-end, fixed-rate mortgages on 1-4 family homes, tracked each quarter since Q1 2013, and shows what rates homeowners are actually paying on the loans they hold today.

The low-rate stock is shrinking

When mortgage rates fell sharply during the pandemic in early 2020, a large wave of refinancing and new loans locked in rates below 3%. McBride notes that a large share of loans was already under 4% before the pandemic.

The peaks and where they stand now:

• Under 4%: peaked at 65.2% in Q1 2022, now 49.1%, a drop of about 16 points.
• Under 5%: peaked at 85.5%, now 65.6%, a drop of about 20 points.
• Over 6%: bottomed at 7.3% in Q2 2022, now 22.5%, roughly three times as high.

From those numbers, about 16.5% of outstanding loans sit between 4% and 5%, and about 12% between 5% and 6%. Under-4% loans are now less than half of the total.

How lock-in works, and why it's weakening

The mechanism is rate lock-in. An owner with a 3% mortgage who sells and buys another home has to take a new loan at today's much higher rates, so the monthly payment rises sharply even for a similar house. Many owners therefore stay where they are. McBride calls this a key reason existing-home inventory was so low.

A staff report from Matteo Crosignani (New York Fed) and Lina Han and Marco Macchiavelli (UMass Amherst) measures geoeconomic risk: the chance that firms lose value when governments use trade or financial leverage for geopolitical ends. Their main point is that you don't need to own foreign stocks to carry this risk. U.S.-listed companies bring it into domestic portfolios through their overseas customers.

How the shock travels

The test case is the Commerce Department's Bureau of Industry and Security. Since 2014 it has often added Chinese firms in semiconductors, telecom, AI and advanced computing to export-control lists, which bar U.S. companies from selling them certain technology. The authors collected these listings by hand. They then used FactSet Revere supply-chain data to find the U.S. suppliers of each targeted firm, and matched those suppliers to the holdings of more than 5,000 U.S. domestic equity mutual funds from 2010 to 2023. Long-term mutual funds held about a fifth of U.S. corporate equity in 2025.

The exposure is large. On average, 20.3% of a domestic fund's assets sit in U.S. firms with at least one Chinese customer. For science and technology funds the figure is 43.3%. When a Chinese customer is added to the list, its U.S. suppliers show a cumulative abnormal return of −3.6%, and most of the drop comes in the first five trading days.

The losses show up in fund returns. When export controls are announced, a one-standard-deviation increase in a fund's holdings of affected suppliers (2.5% of the portfolio) goes with a drop in that month's return, plus higher volatility.

A reader asked Ben Carlson why the VIX volatility index is falling while bond yields rise, when the two usually move together. The question fits the year: the 10-year Treasury yield is up about 30% in 2026, and the stock market is still up double digits.

Theory says one thing, history another

Finance 101 teaches that an asset's present value equals its future cash flows discounted at some rate. Raise the rate and the present value falls. Carlson points out that markets often don't follow this. Rates usually rise when the economy is growing faster, and the Fed usually cuts when the economy needs help. So rising rates often come with good conditions for stocks, and sharply falling rates can signal trouble.

He cites a table he first published in Fortune in early 2021. In 12 of the 14 periods when the 10-year yield rose by 1 percentage point or more, stocks finished positive over the whole period. Some of those periods were bumpy, and the end of some rate cycles went badly, such as 1987 and 2000. His conclusion at the time was: "Inflation is far more important to stocks than interest rate levels." That held up in 2022, when high inflation and rising rates arrived together and stocks fell 25%.

Gita Gopinath has returned to Harvard after her time at the IMF. In a recent Conversations with Tyler episode, highlighted by Conversable Economist, she covered three topics: how the dollar shapes trade, Argentina's fight against inflation, and what trade imbalances actually tell us.

Why exchange rates move trade less than textbooks suggest

The standard story says that when a country's currency weakens, its exports get cheaper abroad and sell more. Gopinath argues the effect is muted because most world trade is invoiced in US dollars, including trade that never touches the US.

She describes the mechanism through production costs. Take a Chinese exporter whose imported inputs are priced in dollars and whose dollar prices are "sticky." For that firm, a weaker yuan does little to its costs, so the easiest choice is to keep pricing its own output in dollars, and those prices barely change. Gopinath adds that the value-added share of trade has fallen over time. More of each export's cost is made up of imported inputs, so there is less margin to squeeze when the currency drops. The effect differs by product: goods that rely more on dollar-priced inputs show less price adjustment, and she says the data confirm that variation.

Argentina's last mile

Argentina's inflation has fallen from about 150% two years ago to around 30%. Gopinath calls that impressive, but notes that getting from there to single digits always takes much longer, in every country that starts from three-digit inflation.

Jonathan Clements's sixth "parting thought" on HumbleDollar is short. It has no data and makes one argument. Before a financial decision, ask whether the person you'll be later will be glad you made it. Clements splits that question into four parts, and each one shows a different way present choices push costs onto the future.

The four channels

Saving. This is the plain one. Clements notes that "every dollar we spend now is a dollar our future self can't spend." How much you save each month decides what your future self will have.

Borrowing. A bank or card company may lend the money, but Clements argues the real lender is your future self, who has to make the payments. Viewed that way, a loan doesn't add to your resources. It moves spending from later to now, and your later self has no say in the deal.

Possessions. A car, a house or a piece of art comes with ongoing care. Your future self has to live with the item and look after it. So the question isn't only whether you want it now, but whether the person you become will still want it and the upkeep that goes with it.

Lifestyle upgrades. Clements gives this one the most attention. Flying business class, buying luxury cars, eating out more and staying in better hotels all create an expectation. Once you're used to them, your future self will want them to continue, and that costs money every year, not just once.

The ratchet problem

Clements takes the fourth point a step further. He calls a slowly rising standard of living "one of life's great pleasures." His example: if you stay at Motel 6 in your 20s and 30s, a Hyatt will feel like a treat in your 40s and 50s. Start at the Ritz-Carlton in your 30s and that path to enjoy is gone. Nothing afterward will feel special, yet you'll be unwilling to go back down.