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Uncertainty reigns in the economy as mortgage rates slide again

By: Movement Staff
March 24, 2023

Over the past year the Federal Reserve has increased the federal funds rate a total of nine times—but this last one was a bit different. The Federal Open Market Committee unanimously decided to hike the overnight lending rate by 25-basis points putting it in a range of 4.75%-5.00%. But the comments made by Fed Chairman Jerome Powell after the meetings are leading many investors to believe the FOMC will slow down its hawkish approach to curbing inflation.

The collapse of Silicon Valley Bank, the takeover of Signature Bank and the most recent "run" on Pacific Western Bank have forced the Fed to recalibrate its quantitative tightening measures. The long-term worry is that banks will be less willing to lend to businesses and households due to the risk which could grind the economy to a screeching halt. The post-meeting statement released by the FOMC was more dovish than its previous release, and read "The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time."

A good number of investors took these comments, and the current economic situation, to mean this could potentially be the last rate hike for the year. Powell remained steadfast in his stance on battling inflation, however, noting "rate cuts are not in our base case" for the rest of this year. 

Uncertainty reigns in the economy as mortgage rates slide again

While this does leave the U.S. economy in a somewhat precarious position for the future that Powell describes as "likely to be bumpy," it has resulted in a bit of a weight lifted off the shoulders of the mortgage industry. In the days following the FOMC's decision, the yield on the 10-year Treasury note dropped to 3.93% at the start of Friday trading. That's about 20-basis points below where the 10-year started the week. That was good news for potential homebuyers as mortgage rates tend to follow the trajectory of the 10-year Treasury yield. 

Freddie Mac's 30-year fixed-rate mortgage average reflected the volatility of the month by decreasing for a second-straight week, falling to 6.42%. Freddie Mac's economists reported, "​​Mortgage rates continued to slide down as financial market concerns came to the fore over the last two weeks. However, on the homebuyer front, the news is more positive with improved purchase demand and stabilizing home prices. If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season."

This was the first meaningful drop in rates since January when we saw a low of 6.09% in the last week of the month. It is no surprise then that the National Association of Realtors showed existing home sales spiked in February. The NAR's data shows a 14.5% month-over-month increase in the sales of previously owned homes from January to February. That was the first monthly gain in a year and the largest increase since July of 2020. Keep in mind, the NAR's research is based on closings so that means the contracts were signed, and rates locked, at the very end of 2022 and into January of this year—when rates were much lower. 

The issue that has continued to linger and cause struggle for some buyers is that inventory is still at historic lows. The NAR reports inventory sits at a 2.6-month supply. While that's higher than February 2022, it's about 10% lower than January. The NAR's Chief Economist, Lawrence Yun, said in their release, "Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines. Moreover, we're seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs.” Yun went on to discuss the historically low inventory, stating what many would-be homebuyers are experiencing which is that  “…multiple offers are returning on a good number of properties.”

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.