The U.S. manufacturing purchasing managers index, or PMI, fell to the lowest level since September 2009 , according to a Thursday report from financial data firm IHS Markit. This was a sign to financial markets that the trade battle could be slowing the U.S. economy.

As markets prepare for a protracted trade war between President Donald Trump's administration and the government of Chinese leader Xi Jinping, investors are rushing into the relative safe haven of the bond market, causing the yield on the U.S. 10-year Treasury to plummet . Mortgage rates loosely follow that yield.

Mortgage rates declined sharply this week after news of sluggish economic data, showing that trade tensions with China may actually be a boon to the U.S. housing market.

The average rate on the 30-year, fixed-rate mortgage fell 4 basis points Wednesday, according to Mortgage News Daily, and fell even more sharply Thursday on the PMI news.

"Lenders will be repricing for the better," said Matthew Graham, chief operating officer of MND. "The resulting rate sheets will put us right in line with the lowest rates in more than a year (same as March 26-28, 2019)."

The most qualified borrowers, or top tier, could see rate quotes under 4%, according to Graham. The average rate spiked over 5% last November, when the expectation was that the Federal Reserve would continue hiking rates. It then fell at the start of this year, as the Fed pulled back on its plans.

Homebuyers are incredibly sensitive to rate moves in today's housing market because home prices are so high. With very little wiggle room in their wallets, buyers have to be able to make the math work on the monthly payment. Just a half percentage point move can mean $100 a month more or less on a $300,000 mortgage.

"The bigger news is that this could prove to be an inflection point for the broader rate market (and even the economy, if we're to believe today's Markit PMI data). That would result in even lower rates," added Graham.

Low interest rates helped fuel the surge in home prices over the last four years, but price gains have been shrinking since less summer, when rates started rising. If rates fall to new lows, and stay there for a while, home prices could turn higher again.

WATCH: April home sales fall 6.9% vs. expected 2.7%