Will DeepSeek Create Deep Cuts In Mortgage Rates? Has Chinese AI Innovator Disrupted Silicon Valley's Tec

Americans have been praying for lower mortgage rates. They had no idea that a Chinese AI app could help them obtain them.

A knee-jerk selloff in tech stocks on Jan. 27 prompted by a new Chinese AI tool by startup DeepSeek that rivals Chat GPT caused some of Silicon Valley’s most prominent companies to see their stock price plummet overnight. Bond yields also fell that day, and the byproduct of lower bond yields —resulting from bond prices increasing—was to see mortgage rates drop as well.

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Although the mortgage rate decline was modest—falling to 6.96%—after the tech stock selloff, the pattern seems to have persisted, as the following week, according to Freddie Mac, it fell again to 6.89%.

“Home shoppers who already have an offer accepted can take advantage of this reprieve, but I don’t expect it to mean lasting mortgage rate relief for home shoppers,” realtor.com Chief Economist Danielle Hale said. “That will come from broader economic stability and ongoing improvement in inflation.”

One of the tech titans to hit the worst was AI chip innovator Nvidia (NASDAQ:NVDA), which saw shares plunge 17% and its market cap drop by $590 billion. However, the fact that DeepSeek still used Nvidia chips to build its AI platform, according to the New York Times — albeit in fewer numbers than their US counterparts — might have been missed by those who suddenly sold their shares in the company. Ultimately, the US-based chip maker is still the kingmaker regarding AI technology.

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Why US Tech Stocks Tanked After DeepSeek Debuted

DeepSeek claims to have built its AI platform for less than behemoths Meta (NASDAQ:META), Google, and Open AI, raising fears that the established AI players were wildly overspending, setting them up for a fall. The concern appeared short-lived as US tech stocks recovered shortly after the initial crash.

After the initial DeepSeek hoopla, the narrative concerning their low-budget creation drew skepticism. Wedbush analyst Dan Ives called it “likely a fictional story.” Bill Stein, chief investment officer and co-founder of Primary Digital Infrastructure, also questioned DeepSeek’s budgetary claims.

"I don’t see how 4-year-old processors are going to compete with the newest processors from Nvidia,” he told CoStar News. “It doesn’t make sense.”

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How Will DeepSeek Affect Interest Rates?

Not much more than they already have. The Fed’s recent move to leave rates unchanged was not a reflection of the turmoil with tech stocks but a response to the general uncertainty about the economy and inflation. Certainly, barring a dramatic change, as seen during the financial crash, the Fed has a policy of not reacting to the stock market.

The Wider Ramifications of DeepSeek

Power stocks have been an unlikely victim of DeepSeek’s arrival. Media reports said that the Chinese generative AI model was trained using far less power than its American competitors, which directly affected the price of power stocks that were previously soaring thanks to increased data center usage.

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Unlike the tech stock drop-off, the ramifications of requiring less power than initially anticipated could be longer-lasting. A recent report from Lawrence Berkeley National Laboratory found that data centers could consume between 6.7% and 12% of total US electricity by 2028, compared with 4.4% in 2023.

“I continue to think that investing very heavily…is going to be a strategic advantage over time,” Meta CEO Mark Zuckerberg said on the company's earnings call late last month. “It’s possible that we’ll learn otherwise at some point, but I just think it’s way too early to call that.”

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