Mortgage Rates, Bank Failures and Fed Meeting….

A little over a week ago, we were expecting employment numbers and the inflation news to affect the Fed meeting being held today. Now we are still looking at those reports but also bank failures! That was not on the radar for most people until this past week. So what does that mean for mortgage rates?

Two weeks ago, Silicon Valley Bank was the target of a bank run and the FDIC took over the company on March 10th. It was the first bank failure since October 2020 and it was followed by another failure in New York by Signature Bank. There were many meetings and lots of discussion over the weekend of March 10-11 but the final result was the Federal Reserve created a Bank Term Funding Program. This program offers loans to banks, credit unions, etc. for up to one year using US Treasuries, agency debt and mortgage backed securities to help the banks through this and to calm financial markets. Silicon Valley Bank had catered to venture companies, startups and high net worth individuals. This means if they pulled their deposits, there would be big amounts of money at stake from a small number of companies. There are larger banks like Wells Fargo and Chase that have many bank accounts with millions of customers, so there isn’t a reason to expect a bank run.

Today, the Fed will be meeting and they had been expected to raise rates by .50% (originally it was expected to be .25 but with inflation numbers not decreasing enough and employment numbers still strong, investors started pricing in a .50 basis point increase). Once the news of the bank failure hit, the expectations of a Fed increase decreased. Last week, it was expected to be a .25% rate increase, now it’s possible that they do not raise rates at all. Investors are also expecting the Federal Funds rate to be at about 4.14% in December 2023 compared to 5%+ as of last Friday. There is talk that the Fed may start cutting rates this fall.

So, the bond market has also been moving quickly this past week! As banks fail, mortgage rates tend to go down. Last week, we saw the bond market improve on Monday, get a bit worse on Tuesday but on Wednesday we saw more improvement as news came out about banks in Europe feeling the pressure, too. The Fed has been forced to think about stopping the increase in rates and to reevaluate future rate hikes. If the Fed holds rates steady today and talks about a more careful watch on rates, banks, inflation, etc., we could see mortgage rates move down some more. Things will be a bit volatile while banks and mortgage lenders navigate this tricky environment. Mortgage pricing will be a bit cautious as no one wants to get caught on the wrong side of things. We may see mortgage rate pricing changing more than once a day which has been common lately.

The bottom line is mortgage rates should continue to improve over time for the rest of 2023 and into 2024, but things are possibly going be choppy along the way, too! Don’t be surprised if there are days where we see some increases! The Fed won’t totally abandon its fight on inflation but they need to be cautious. So, for those that are thinking about buying, it could be a great time to find a new home!

Leslie Vanderwerf,  NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website

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