Just a week after chaos in erupted in the financial space as the Federal Deposit Insurance Corporation (FDIC) was named receiver of both Signature Bank and Silicon Valley Bank (SVB), Freddie Mac reported the 30-year fixed-rate mortgage (FRM) sliding to 6.60% as of March 16, 2023, down from last week when it averaged 6.73%. A year ago at this time, the 30-year FRM averaged just 4.16%.
“Mortgage rates are down following an increase of more than half a percent over five consecutive weeks,” said Sam Khater, Freddie Mac’s Chief Economist. “Turbulence in the financial markets is putting significant downward pressure on rates, which should benefit borrowers in the short-term. During times of high mortgage rate volatility, homebuyers would greatly benefit from shopping for additional rate quotes. Our research concludes that homebuyers can potentially save $600 to $1,200 annually by taking the time to shop among multiple lenders.”
Also this week, Freddie Mac reported the 15-year FRM averaging 5.90%, down from last week when it averaged 5.95%. A year ago at this time, the 15-year FRM averaged 3.39%.
“Last week was a whirlwind of economic indicators and unforeseen events that sent mortgage rates reeling,” said Hannah Jones, Economic Research Analyst at Realtor.com. “At the beginning of last week, Chair Powell suggested that more aggressive rate hikes may be necessary to rein in inflation, which led to a sharp drop in the stock market and an increase in mortgage rates. However, at the end of the week, the failure and resulting bailout of Silicon Valley Bank led to heightened investor concern of additional bank closures, which pushed activity towards Treasury bonds, resulting in dropping yields on the 10-year treasury and a decrease in mortgage rates.”
With mortgage rates trending downward, mortgage application volume experienced a rise for the second consecutive week, as the Mortgage Bankers Association (MBA) reported a 6.5% week-over-week uptick.
“Mortgage applications increased for the second consecutive week amid a drop in rates that was brought on, in part, by concerns around the health of several institutions in the banking sector,” said Robert D. Broeksmit, CMB, President & CEO of the MBA. “Both home-purchase and refinance activity saw gains last week, but remain below year-ago levels. Anticipated further rate declines may spur additional application gains as the spring home buying season begins."
The MBA’s Refinance Index increased 5% over the previous week, but remained 74% lower than the same week one year ago.
“Refinance activity remained more than 70% behind last year’s level, as rates are still more than two percentage points higher than a year ago,” added Kan. “The dip in rates did bring some borrowers back as evidenced by the 5% increase in refinance applications last week.”
And looking ahead, Jones noted that rates may dip even further amid the recent failures of two major banks.
“February’s employment and inflation data both pointed to a still-hot, though slowly cooling, economy. All else being equal, this would likely mean a more aggressive rate hike at next week’s FOMC meeting,” noted Jones. “However, in light of last week’s bank failures, the committee may choose to remain conservative to ensure stability in the economy.”