After a topsy-turvy week, mortgage rates drop
In the wake of turbulence in the banking sector, the 30-year fixed-rate mortgage fell to 6.6%, down from 6.73% a week ago.
Key points:
- Last week’s failure of Silicon Valley Bank and other stresses on financial institutions put a stop to five weeks of rate increases.
- Attention now turns to a key Fed meeting next week, which may determine where interest rates go next.
A week of volatility in the financial markets sent mortgage interest rates downward, which could help borrowers in the short term.
The average 30-year fixed-rate mortgage came in at 6.6% this week, according to the latest Freddie Mac survey. That's down from 6.73% the previous week, ending five straight weeks of increases.
The turbulence of the past week, including the failure and resulting bailout of Silicon Valley Bank, put downward pressure on interest rates, said Sam Khater, Freddie Mac's chief economist.
The real or perceived stress to the financial system is leading to increased recession fears, which could in turn lead banks to tighten lending standards, said Orphe Divounguy, senior macroeconomist at Zillow Home Loans. That could cause mortgage rates to fall further, even if the Federal Reserve remains aggressive on raising the federal funds rate.
"Going forward, the Fed will have to advance its goal for price stability while also limiting financial stability risks. Luckily, recent data on consumer and producer prices also suggest disinflation is still underway," Divounguy said.
The shakeup in the banking world has put the Federal Reserve in a tough spot. On the one hand, they want to try and continue reducing inflation, but raising interest rates could put further pressure on banks.
"February's employment and inflation data both pointed to a still-hot, though slowly cooling, economy," said Hannah Jones, economic research analyst at Realtor.com. "All else being equal, this would likely mean a more aggressive rate hike at next week's [Federal Open Market Committee] meeting. However, in light of last week's bank failures, the committee may choose to remain conservative to ensure stability in the economy."
As rates dipped, mortgage applications increased 6.5% this week, according to data from the Mortgage Bankers Association.
"Home-purchase applications increased for the second straight week but remained almost 40 percent below last year's pace. While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions," said Joel Kan, MBA's deputy chief economist.
The 15-year fixed-rate mortgage averaged 5.90%, which was down slightly from 5.95% last week.