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Economy in wait-and-see mode as mortgage rates trend down

By: Movement Staff
March 17, 2023

March delivered one of the most volatile economic weeks since 2008 —and it's not quite over yet. 

The fallout from the collapse of Silicon Valley bank, and the subsequent FDIC shutdown of Signature Bank, forced many investors to flee to the relative safety of U.S. government bonds. As a result, the 2-year Treasury note yield saw its largest decline since 1987 (which many will recall was the year of the infamous Black Monday on Wall Street) and the 10-year yield dropped by about 30-basis points to briefly move back below 3.4%. 

Any time the yields for those bonds move lower, as Freddie Mac analysts note, is good news for the mortgage industry. "Mortgage rates are down following an increase of more than half a percent over five consecutive weeks," they said in their weekly release. "Turbulence in the financial markets is putting significant downward pressure on rates, which should benefit borrowers in the short-term."

Freddie Mac's report shows rates moved down to 6.6% on average for a 30-year-fixed-rate mortgage. At this point, any downward trend in rates is expected to spur immediate activity in mortgage applications. The Mortgage Bankers Association reported a 6.5% increase in mortgage applications week-over-week for the week ending March 10. This survey was recorded before the collapse of SVB and the downward movement in rates, so expect to see the week ending March 17 showing even stronger mortgage application activity.

Economy in wait-and-see mode as mortgage rates trend down



The Federal Open Market Committee (FOMC) is set to meet March 20-21 and, at the beginning of the month, was expected to increase the overnight lending rate by 25-basis points. As the fallout from the SVB collapse continues to ripple throughout the global financial world, the Federal Reserve finds itself with a much more complicated decision. 

The bank collapse is a large part of the equation. The other piece is the stubbornly high inflation that the Fed has been warring with since March 16, 2022—when the FOMC enacted the first in a series of 8 rate hikes bringing us to where we are today. The consumer price index (CPI) reading for February came in at 6%, which was in line with expectations. While that is significantly better than the 8.5% CPI from 2022, it is also still well above the Fed's stated 2% target rate. This gives weight to the argument that the Fed should continue down this path of quantitative tightening to quell inflation.

The argument against raising rates, and in favor of actually cutting rates this year at some point, is what happened with the bank collapse. Mortgage originators across the country felt the brunt of the Fed raising rates and tightening its grip on the economy as interest rates skyrocketed both for banks and for mortgages. This is what in part caused the issues for SVB as its purchases in mortgage-backed securities went underwater as mortgage rates rose. This has led some to believe the Fed might reconsider its hawkish stance and instead loosen up slightly as the year progresses.

Right now, the only certainty is that the Fed will meet March 20-21 and will decide at that time what to do with the federal funds rate. The best thing any potential home buyers or sellers can do is to keep in close connection with their Movement Mortgage loan officer to see where rates are moving to make the most informed decision possible.

Author: Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.