03/14/2023
What does a big bank failure mean for mortgage rates? Here is a great explanation from John Isgrig of Alcova Mortgage:
If you haven’t paid attention or understand just yet what has happened, here’s a brief summary.
Last week, Silicon Valley Bank, the 16th largest bank in the US and a bank catered to tech start-ups, venture capital, and high net-worth individuals, ran into liquidity issues and was not able to cover all customer deposits.
Wednesday night, they announced a stock offering to quickly obtain cash to shore up their liquidity issues. This caused further panic and a bank run on them.
Thursday, they attempted to find a buyer for the bank.
After the stock offering and bank sale did not work, the FDIC stepped in and took control the bank on Friday.
Over the weekend, the FDIC, the Fed, Treasury, and Congress met to come up with a solution for the lingering banking crisis.
Last night before the Asia markets opened, the Fed came out announcing additional funding available to banks to cover their deposits for all customers. No customer should lose any of their money. It’s called the Bank Term Funding Program (BTFP) and is backed by the US Treasury.
After the above events happened, Goldman Sachs came out last night and said they forecast no Fed rate increase in March and that we should have a pause on rate hikes due to the stress on the banking system.
What does this mean?
Up until 3 days ago, we were destined for another 50bps rate hike on March 22. Now, we may have no more rate hikes or maybe only 25bps and then none after that.
Tomorrow March 14, there is a big report coming out on CPI (Consumer Price Index). This is a huge inflation report. If it comes in favorable meaning inflation has pulled back (even in just the slightest amount), I think that gives more reason for the Fed rate hikes to pause.
This could result in some relief on the mortgage rates that we have all have been waiting on.
We aren’t out of the woods yet as there is a major banking crisis looming this week and we need to get the confidence back that your money will be safe and obtainable whenever you need it. Last night’s announcement of the additional funding available to banks should help offset some of the panic of bank runs happening.
