Mortgage rates are "tottering" after the sudden collapse of Silicon Valley Bank

Mortgage rates are "tottering" after the sudden collapse of Silicon Valley Bank.

Mortgage rates' tottering' after Silicon Valley bank crash and one expert says borrowers can benefit from current volatility - here's how much you can save on your home loan.

After five weeks of bullish momentum, mortgage rates unexpectedly fell this week, which could send potential buyers back into the market.

"This past week has been a whirlwind of economic indicators and unexpected events that sent mortgage rates reeling," writes Hannah Jones, economic research analyst at Realtor.com.

Despite the Federal Reserve suggesting earlier last week that the federal funds rate could see larger hikes to quell inflation, recent crises in the banking sector sent investors rallying.

"The failure and resulting bailout of the Silicon Valley bank increased investor anxiety that additional banks would be closed, which pushed activity toward Treasuries, leading to lower yields on 10-year Treasurys and lower mortgage rates," says Jones.

30-year fixed-income mortgages

The 30-year constant rate average fell to 6.60% this week, compared to last week's average of 6.73%. A year ago, America's most popular home loan averaged 4.16%.

While that drop has made home-buying more affordable for many Americans, Nadia Evangelo, chief economist for the National Association of Realtors (NAR), believes rates could drop further, depending on the financial market and next week's Federal Reserve meeting.

"At today's rate, many people can afford to buy a home at a median price because they need to spend less than 25% of their gross income to make the monthly mortgage payment," she adds.

"If prices fall further to 6%, buyers will be able to purchase a median-priced home by taking a 14% reduction, which is the average down payment for buyers in 2022."

15-year fixed rate mortgage trend

This week, the 15-year fixed-rate average fell slightly from 5.95% to 5.90%. This time last year, the average 15-year fixed interest rate was just 3.39%.

"The turmoil in financial markets is putting significant downward pressure on interest rates, which should benefit borrowers in the short term," says Sam Khater, chief economist at housing giant Freddie Mac.

It encourages buyers to take advantage of volatility and look for additional rates before settling on a home loan.

"Our research concluded that homebuyers can save $600 to $1,200 per year by spending time shopping around among several lenders."

Luxury home purchases have fallen.

Wealthy homebuyers are experiencing sticker shock in the market, too. Luxury home sales in the United States fell 44.6% year over year to the second lowest on record for the three months ending Jan. 31, real estate brokerage Redfin reports.

The average sale price has jumped 9% since last year to $1.09 million, near an all-time high of $1.1 million in spring 2022. However, according to Redfin economic research leader Chen Zhao, there may still be an "upside" for potential buyers.

Zhao points out that competition is limited and mega loans often have lower mortgage rates than other types of loans because there is less risk that high-end buyers will default on their mortgages.

"Wealthy home hunters are also frequently offered additional rate discounts from their banks as an advantage for storing substantial money there."

Zhao recommends that buyers shop for the best possible mortgage rate and ask their preferred lender to match the lowest bid.

Mortgage demand continues to grow.

Thanks to lower interest rates, demand for mortgages is up 6.5% from last week, according to the Mortgage Bankers Association (MBA).

"Home orders increased for the second week in a row but remained nearly 40% below last year's pace," says Joel Kahn, vice president, and deputy chief economist at MBA.

"While lower rates should boost housing demand, finacial market volatility may cause buyers to pause their decisions."

The drop in interest rates also encouraged some borrowers to refinance their home loans, with refinancing activity picking up 5% - although still 74% lower than in the same week a year ago.