The collapse of Silicon Valley Bank will likely help push mortgage rates down further, experts say.
The collapse of SVB SIVB,
The U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp. announced measures so that depositors will be able to get all of their money back.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” they said in a joint statement released Sunday. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
Much like the uncertainty felt around the time of the U.S.-China trade war as well as the start of the Russia-Ukraine war, Marr said, the collapse of the two banks is concerning many investors and spectators.
Previously, such concerns resulted in long-term bond yields falling sharply, much like they did on Monday. As of Monday 2:30 p.m. eastern time, the 10-year TMUBMUSD10Y,
Mortgage rates closely track the 10-year Treasury yield. On March 9, the 30-year fixed-rate mortgage was averaging at 7%, per Mortgage News Daily. On March 13, the 30-year fell to 6.57%.
Though “the effects might seemingly have very little to do with housing, mortgage rates fell and sent buyers right back into the market in the spring of 2019,” Marr recalled, referring to the U.S.-China trade war era.
“That could be a parallel situation that we’re in now,” he added. “We see this time and time again with global economic news … There’s a lot of uncertainty causing bond yields to really tank and that has very strong implications for mortgage rates.”
And in fact, the typical home buyer may actually find good deals with their mortgages, if they shop around, Marr said.
The collapse of SVB is the second largest bank failure in U.S. history. The closure sparked worry among the financial industry about whether the weakness would spread, as it did when Lehman Brothers collapsed in 2008.
But U.S. regulators stepped in and limited the damage, seizing control of the bank and taking emergency action.
Signature Bank met with the same fate. The joint statement by the Treasury, Federal Reserve, and FDIC added: “We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”
While the housing markets in the West — such as in San Francisco and the Bay Area — are struggling with home prices, the bank failures aren’t going to lead to a meltdown in housing, such as in 2008, experts said. Back then, the recession was sparked by subprime lending and a foreclosure crisis.
“I don’t think the bank failures will have a material impact on the housing market in the western U.S. The failures are idiosyncratic, and given the government’s decision to pay all depositors, I don’t expect there to be a problem in the broader financial system,” Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch.
Banks will still provide mortgage loans, he added, and “if anything mortgage rates may decline given the flight to quality into the bond market and prospects that the [U.S. Federal Reserve] may delay its rate increases.”
Mortgage lenders — which includes banks — may not necessarily see problems with liquidity, said Sam Hall, property economist at Capital Economics.
“The direct impact on the housing market is likely to be small. Moreover, SVB’s holdings of residential mortgage-backed securities (MBS) account for a very small share of the overall market, so the forced selling of those assets is unlikely to put any downward pressure on MBS prices,” he added.
Al Otero, portfolio manager at Armada ETF Advisors, also said that the collapse may have forced the Fed to hit the brakes on raising rates, which helps the housing market.
There’s a rally in rates across the yield curve, Otero said, “and an expectation that the Fed will now ‘pause’ raising the funds rate at its March 21-22 policy session.”
And this means that “we could see a material reduction in mortgage rates going into the spring sales season,” he added, “which would be a substantial positive for the housing market.”
Regional banks are seeing investors grab their deposits and flee to bigger banks for safekeeping, worried about the health of the smaller players. But these spooked-out types are more of an exception, not the norm, Redfin’s Marr noted.
““By and large, I think most people will go about thinking that this is … an isolated issue and that it doesn’t impact them too much.””
“There’s probably going to be two groups of people — people who are in Silicon Valley or in finance and economics that are really paying attention, and then other groups of people who don’t have a clue about what’s going on,” Marr said.
“If you’re in the first group of people, then certainly your confidence in terms of the stability in the economy might have been shaken a little bit, you might be less willing to go out and make a big decision that relies maybe on your income and it could be a wake up call to some people,” he continued.
“But by and large, I think most people will go about thinking that this is sort of like an isolated issue and that it doesn’t impact them too much,” Marr added. “And maybe they get a little bit of benefit from mortgage rates.”
‘They have a person who has managed their money for many years, but they are overly trusting.’
Aarthi Swaminathan is a MarketWatch personal finance reporter.
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