Mortgage rates dropped this week after two bank failures inflamed investor fears.
The rate on the average 30-year fixed mortgage fell to 6.60% this week, down from 6.73% the week prior, according to Freddie Mac. The rate tracks the 10-year Treasury yield, which has fallen over 40 basis points from last Thursday’s close as investors bet the Federal Reserve could slow its interest-rate hiking campaign after Silicon Valley Bank and Signature Bank collapsed and worries emerged over Credit Suisse and First Republic Bank.
Freddie Mac’s survey runs from Thursday to Wednesday, with results published on Thursday.
The sudden drop in rates revived some activity in the housing market, encouraging some sidelined buyers to make moves. Still, the high volatility of the market could keep other folks on pause.
“I think there’s still a lot of uncertainty, but in the near term, I do expect rates to drop,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance on Monday. “I expect buyers to take advantage of those mortgage rates because we’ve seen buyers be incredibly sensitive to those interest rates.”
Buyers rush to lock in lower rates
As rates slid toward the end of last week, some homebuyers rushed to capitalize on that window of opportunity, uncertain how long it would last.
The volume of applications to purchase a home increased 7% from one week earlier, the Mortgage Bankers Association’s survey for the week ending March 10 found. Overall purchase activity remained 38% lower than the same week one year ago.
“People are right to lock in a rate during a dip,” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance on Monday. “Around the first week of March, rates were up in the 7s. If you lock today, you’ll be saving almost 50 basis points, which is crazy. It’s a significant payment difference.”
Will a rate drop last?
Rates likely will remain volatile as markets weigh which will affect the Federal Reserve’s decision more next week on interest rates — the shockwaves from this week’s bank failures or the latest still-hot inflation reading. The European Central Bank on Thursday hiked its short-term interest rate by a half-point despite the banking turmoil.
So far, rates have seesawed as the banking crisis unfolded.
A separate survey by Mortgage News Daily, which tracks mortgages on a day-to-day basis, saw mortgage rates slide from 7% on Thursday last week to 6.57% on Monday. Rates then surged to 6.75% on Tuesday following the latest government inflation data, and then dropped 20 percentage points to 6.55% by Wednesday afternoon.
Those kinds of rate movements might not give potential buyers enough time to react unless they have their documents ready, according to Keith Gumbinger, vice president of HSH.com.
“To be most beneficial, rates need to decline and hold there for a time so potential buyers and homeowners have the opportunity to react,” Gumbinger told Yahoo Finance on Monday. “The rate decline from 7% to 6% from November to January did attract some folks, but it took weeks to attract consumers and create even a modest increase in activity.”
Though economists such as Fairweather remain uncertain whether this dip will last, she noted that buyers should be cautious of rushing too fast to close a deal.
“Buyers should know that they should definitely shop around because not all lenders are going to give you the same quote, and I’m sure that some lenders may be directly affected by what’s going on,” Fairweather said. “It’s definitely a good time to shop around and talk to three or four lenders. Don’t just stop after getting that first quote.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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