Daily Management Review

Mortgage Rates In The US Have Dropped The Most In Four Months As A Result Of The SVB, Says MBA


Lower mortgage interest rates were at least one benefit of last week's turmoil in the banking sector for American homebuyers.
After Silicon Valley Bank's failure and emergency measures to support the larger banking system drove a mad dash by investors to the safety of government bonds last week, interest rates on the most popular U.S. home loan fell by the most in four months, the Mortgage Bankers Association reported on Wednesday.
The average rate on 30-year fixed-rate mortgages decreased by 0.23 percentage points to 6.48% for the week ended March 17 from 6.71% the previous week as a result of the decline in yields on Treasury notes that serve as benchmarks for mortgages.
Since a decline of the same magnitude in mid-November, it was the biggest weekly drop.
Loan application volumes increased as a result of the lower interest rates, reaching a six-week high for both new loan applications and refinancings of existing loans, according to MBA.
"Both purchase and refinance applications increased for the third week in a row as borrowers took the opportunity to act, even though overall application volume remains at relatively low levels," MBA Vice President and Deputy Chief Economist Joel Kan said in a statement.
Given that the yield on the 10-year Treasury note, which serves as a benchmark for mortgage rates, fell more than half a percentage point over the same window, the decrease in residential borrowing costs in the last two weeks of 0.31 percentage points was actually much more modest than might have been anticipated. Other than the panic during the early COVID-19 pandemic, it was the biggest drop since the 2008 financial crisis.
Kan attributed that to rising market volatility for mortgage-backed securities, which restrained further declines in the cost of consumer borrowing.
According to him, the spread between the 30-year fixed and 10-year Treasury bonds remains wide at around 3 percentage points, compared to a more typical spread of 1.80 percentage points.
Mortgage rates had risen to more than 7% in October, as the Federal Reserve raised its benchmark policy rate to combat inflation at the fastest rate in 40 years. The interest-rate-sensitive housing sector has borne the brunt of the Fed's actions, despite the fact that existing-home sales increased in February for the first time in about a year.
With the Federal Reserve expected to raise interest rates again later on Wednesday, and market volatility having subsided so far this week, it's unclear how long the recent interest rate relief will last.