Housing market could see relief from shock move in Treasury market after SVB collapse
Mortgage rates tumbled Monday in the wake of Silicon Valley Bank’s collapse that has rattled markets.
The average 30-year mortgage rate dropped to 6.57% on Monday, according to the latest Mortgage News Daily quote. That’s down from 6.76% on Friday when SVB failed and 7% on Thursday when the bank’s stock got hammered. The rate tracks the 10-year Treasury yield, which has fallen around 30 basis points since Wednesday's close as investors bet the unfolding chaos could persuade the Federal Reserve to slow its interest-rate hiking campaign.
The unexpected drop in rates could offer an opening for price-strained homebuyers and homeowners who have been waiting for an opportunity to lock in a lower rate, but housing experts remain uncertain how long the dip will last.
“There's still a lot of uncertainty but in the near term, I do expect mortgage rates to drop,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance. “And I expect buyers to take advantage of those mortgage rates because we've seen buyers be incredibly sensitive to those interest rates.”
Lock in a rate?
A nearly half-point drop in rates could give a buyer at least 5% of their purchasing power back, according to Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com.
"The minute mortgage rates drop, affordability improves," he told Yahoo Finance.
But the latest decline still might not be enough to convince some homebuyers to come back into the market given lingering affordability concerns, Keith Gumbinger, vice president of HSH.com, said. For instance, two weeks ago when rates were at 6.65% — a bit higher than now — a buyer of a median-priced home still faced a monthly mortgage payment that was 49% higher than a year ago, Realtor.com data showed.
“Any decline in rates likely only partially erases the measurable increases of the past few weeks,” Gumbinger told Yahoo Finance. “It's helpful to those in or nearly in the market, but the overall picture still isn't all that bright rate-wise.”
Further drops, though, could spark some activity. For instance, when rates started to fall at the start of the year, almost dipping below 6% at the beginning of February, mortgage applications for purchases and refinances perked up.
“[That] did attract some folks, but it took weeks of lower rates to attract consumers and create even a modest increase in activity,” Gumbinger said.
But if the decline in rates is short-lived, don’t expect it to move the housing market much.
“Consumers that aren't in the market already — or who aren't highly prepared to act — can't easily take advantage of a sharp decline in rates,” Gumbinger said. “To be most beneficial, rates need to decline and hold there for a time, so potential homebuyers and homeowners have the opportunity to react.”
How long the rate drop will last is anyone’s best guess.
Before the collapse of Silicon Valley Bank — and Signature Bank over the weekend— the Federal Reserve was likely to raise its benchmark rate next week after a stronger-than-expected jobs report on Friday. But the banks' failures and subsequent panic in the markets that triggered the drop in mortgage rates have left both housing economists and industry experts at a divide on how long the decline will go on.
“What is unclear, though, is like is this a temporary dip?” Fairweather said. “Is this going to be the Fed pivoting earlier than they planned? And if they do pivot earlier, will that mean that there's inflation later on? They have to deal with that, maybe worse than if they had stayed the course.”
On Tuesday, February’s inflation report comes out, which will offer yet another layer to the calculus, especially if consumer price growth comes in hotter than expected.
“This week's [inflation] data and next week's Fed meeting are also going to have implications for the economy and mortgage rates, and by then we should also have a better handle on how much of a shock to the financial system this bank's failure will be,” Danielle Hale, chief economist Realtor.com, told Yahoo Finance.
Even predicting where mortgage rates end today isn’t easy, Gumbinger said.
“Rates were a little lower on Friday than Thursday, and lower today than Friday, and we're probably a quarter-point or perhaps a bit more lower now than those days right now… but the day's not over yet,” he said. “Anything can happen.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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