Housing expert on mortgage rates: 'Plan on rate volatility' ahead of Fed
Mortgage rates jumped again on Tuesday, a day before the Federal Reserve makes a crucial decision on whether to continue hiking its benchmark rate amid the current banking crisis that's engulfed three banks already.
The rate on the average 30-year fixed mortgage increased to 6.75% on Tuesday, up from 6.67% on Monday and 6.55% on Friday, according to the latest quote by Mortgage News Daily. Rates followed the rebound of the 10-year Treasury yield, which increased almost 20 basis points from Friday’s close as investors waffle on what to expect from the Fed.
The increase reverses some of last week's drop that provided a window of opportunity for homebuyers and reflects the current unpredictability of rates.
“For buyers shopping now – especially in high-priced areas – a sustained rate drop will be a welcome boost to affordability, but they should still plan on rate volatility,” Skylar Olsen, chief economist at Zillow, said in an emailed statement. “Lower rates would help homebuyers who are stretched thin when it comes to affordability, but if Silicon Valley Bank's troubles are indicative of wider issues, a coming recession could be deeper and longer-lasting than expected.”
It all depends on the Fed
Before the collapse of Silicon Valley Bank (SVB) and Signature Bank and the takeover of Credit Suisse in the last two weeks, market watchers largely expected the Federal Reserve to raise rates by as much as a half-point after several indicators showed a robust jobs market and still-high inflation.
However, the banks’ failures this month and brewing concerns over other regional banks left housing economists and industry experts at a divide on whether the central bank will raise rates at all.
“Initial panic has eased, but market watchers worry that SVB’s missteps are more widespread, and investors are likely to pursue safer assets,” Olsen said. “The Fed might now rethink strong rate increases that appeared imminent just weeks ago.”
Those shifting doubts showed up in mortgage rates.
Before the turmoil began, rates had hit 7.05%, according to Mortgage News Daily. After the bank failures, they fell to 6.57% last week on Monday, then surged to 6.75% on Tuesday following new government inflation data. By Wednesday afternoon, rates had dropped 20 percentage points to 6.55%, a dip that was fleeting with rates ticking higher on Thursday to 6.69%. Rates ended the week back at 6.55%.
While the Fed’s decision on Wednesday may have some sway on rates in the short term, pervasive affordability constraints will continue to put pressure on the housing market while inflation lasts, Keith Gumbinger, vice president of HSH.com, told Yahoo Finance.
“What the Fed may or may not do does have some effect, but quarter-point, half-point or no point at all, mortgage rates will remain closer to cycle highs than not,” Gumbinger said. “as long as inflation continues to be an issue, as long as labor markets remain tight and throwing off wage increases the Fed feels are inconsistent with 2% core personal consumption inflation, and as long as the economy continues to perform at a pretty solid clip.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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