Mortgage Rates Drop Sharply, Sparking Hope for Spring Housing Market
The average rate on the popular 30-year fixed mortgage dropped to 6.57% on Monday, according to Mortgage News Daily, down from 6.76% on Friday and a high of 7.05% last Wednesday.[0] This decrease could potentially lead to increased home sales in the spring housing market, and is likely due to the yield on a 10-year Treasury dropping to a one-month low in response to the recent bank failures.[1]
The collapse of Silicon Valley Bank and Signature Bank within a week has sparked fear of a larger financial meltdown across regional US banks.[2] The two banks, which were the second- and third-largest bank failures in US history, had a host of factors contributing to customers losing confidence and withdrawing money.[3] But one significant force that impacted SVB was the pressure created by the Federal Reserve’s record pace of interest rate hikes over the last year in an effort to curb inflation.[4]
The Federal Reserve's interest-rate decisions also impact mortgage rates. Adjustable-rate mortgages are directly impacted by them, while 30-year loans are indirectly affected. When attempting to forecast Federal Reserve choices, the purpose of raising rates is to prevent an economic downturn or a recession from occurring.[5]
The 10-year Treasury yield has fallen nearly 40 basis points since last Wednesday, while the average 30-year mortgage dropped from 7% on Thursday to 6.57% on Monday.[6] Markets now have to contend with the “inflationary impact of consumer fear,” and they are looking to tomorrow morning's consumer price index report, and next Wednesday's Federal Open Markets Committee meeting for answers. But, unless inflation flares up, mortgage rates are likely to retreat, which could bring prospective home buyers off the sidelines.[7]
Interest rate increases have been implemented in order to cool the job market, which has remained strong.[8] But, the Federal Reserve’s actions are going to have plenty of ripple effects across the economy, some of which could do a lot of damage and could catch people by surprise.[8] Is there a risk of further banks being endangered?[8] It's intricate.[5] Beyond the ins and outs of what rate hikes mean for a handful of regional banks, we can all be sure of one thing: the impact of consumer fear may continue to drive market behavior.
0. “Mortgage rates tumble in the wake of bank failures” CNBC, 13 Mar. 2023, https://www.cnbc.com/2023/03/13/mortgage-rates-tumble-in-wake-of-bank-failures.html
1. “Mortgage rates post big decline amid Silicon Valley Bank fallout” Fox Business, 13 Mar. 2023, https://www.foxbusiness.com/economy/mortgage-rates-post-big-decline-silicon-valley-bank-fallout
2. “Silicon Valley Crisis Explained In 5 Points” NDTV, 15 Mar. 2023, https://www.ndtv.com/world-news/silicon-valley-crisis-explained-in-5-simple-points-3862203
3. “Mortgage Rates Fall After Banks Fail” Bankrate.com, 14 Mar. 2023, https://www.bankrate.com/mortgages/mortgage-rates-fall-after-bank-failures/
4. “What Silicon Valley Bank's Collapse Says About the Easy Money Era Ending” PBS, 14 Mar. 2023, https://www.pbs.org/wgbh/frontline/article/silicon-valley-bank-federal-reserve
5. “A New Bank Crisis? Unlikely, But It May Impact RE” | Florida Realtors, 13 Mar. 2023, https://www.floridarealtors.org/news-media/news-articles/2023/03/new-bank-crisis-unlikely-it-may-impact-re
6. “Mortgage rates are dropping after Silicon Valley Bank collapse. How low will they go?” San Francisco Chronicle, 13 Mar. 2023, https://www.sfchronicle.com/realestate/article/mortgage-rates-silicon-valley-bank-17836939.php
7. “If you're renewing a mortgage or buying a house, the collapse of Silicon Valley Bank is the best news in ages” The Globe and Mail, 13 Mar. 2023, https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-if-youre-renewing-a-mortgage-or-buying-a-house-the-collapse-of-silicon/
8. “Silicon Valley Bank collapse: Is the Federal Reserve to blame?” Vox.com, 14 Mar. 2023, https://www.vox.com/money/2023/3/14/23640065/silicon-valley-bank-collapse-fdic-interest-rates-federal-reserve
