Housing activity perked up on brief dip in mortgage rates after SVB collapse

Mortgage applications jumped last week as would-be buyers and homeowners capitalized on a sudden drop in rates following the failures of Silicon Valley Bank and Signature Bank.

The volume of all mortgage applications rose 6.5% compared with the previous week, the Mortgage Bankers Association’s survey for the week ending March 10 found. The volume of purchase applications increased 7% from the week prior on a seasonally adjusted basis, the MBA found, while the number of refinance applications rose 5%.

The increase in activity underscores how sensitive budget-conscious homebuyers — and some owners — are to sudden movements in rates, which have more than doubled in the last year as the Federal Reserve combats inflation.

“Treasury yields declined late last week, as market concerns over bank closures and potential for broader ripple effects triggered a flight to safety in Treasury bonds,” Joel Kan, MBA’s vice president and deputy chief economist said in a statement. “This decline pushed mortgage rates for all types of loans lower.”

Re/Max Solutions Associate Broker Kurt Sabel, right, talks with prospective buyer Ned Pierce outside a home for sale in Gilbert, Ariz. (Credit: Matt York, AP)
Re/Max Solutions Associate Broker Kurt Sabel, right, talks with prospective buyer Ned Pierce outside a home for sale in Gilbert, Ariz. (Credit: Matt York, AP)

For instance, the average contract interest rate for conforming 30-year fixed mortgages — those with balances of $726,000 or less — decreased to 6.71% from 6.79%. Folks seeking jumbo loans – those with balances greater than $726,000 – saw rates fall from 6.49% to 6.39%, according to MBA. The average rate on the five-year adjustable-rate mortgage also fell to 5.69% from 5.75%, while the rate on the 15-year fixed mortgage — a common refinance option — slipped to 6.14% from 6.25%.

Mortgage rates track the yield on the 10-year Treasury, which dropped last week and earlier this week as investors sought out less risky assets, as Kan noted, and bet the ongoing chaos among regional banks could convince the Fed to slow its interest-rate hiking campaign. The yield reversed some on Tuesday after a government report showed inflation remained high.

But the brief respite in mortgage rates opened the door for some.

"I expect buyers to take advantage of those mortgage rates because we've seen buyers be incredibly sensitive to those interest rates,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance on Monday after mortgage rates shed almost a half-point since Wednesday last week.

Still, the drop wasn’t enough to reboot the housing market. Purchase applications remained 38% lower than the same week a year ago.

This kind of market volatility may also cause some potential buyers to stick to the sidelines, Kan said. There is also the matter of ongoing affordability issues, as still-high mortgage rates and home prices remain a sticky challenge for many first-time homebuyers.

For instance, the buyer of a median-priced home seeking a 6.65% rate would face a monthly mortgage payment that’s 49% higher than a year ago, Realtor.com estimated two weeks ago.

And refinancing remains far from its levels from two years ago when mortgage rates hovered around 3% and homeowners refinanced in droves.

Applications to refinance are 74% lower than one week ago, the MBA cited, as very few homeowners could benefit from refinancing to get a lower rate.

Approximately six in seven U.S. homeowners with a mortgage in September 2022 had a mortgage rate that was far below 6%, Redfin data showed. That’s 85% of homeowners who aren’t likely to refinance anytime soon.

“For now, refinance activity remains near record lows,” Andy Walden, vice president of enterprise research at Black Knight, previously told Yahoo Finance.

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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