A major bank failure has scared investors. It’s unclear if things will get worse, but financial stress could lower mortgage rates and push the Fed to reconsider rate increases.
NEW YORK – The failure of Silicon Valley Bank and Signature banks has scared investors. If a bank the size of Silicon Valley can go under, they wonder, what could be next? As a result, stocks ran sporadically lower and bank stocks took an especially hard hit.
Currently, however, it’s unclear if the financial industry’s problems are a hiccup or a precursor to something bigger, though the government has taken steps to waylay fears.
In an address to the nation Monday, President Biden assured all of the defaulted banks’ investors that they would have full access to their money, and he promised to take other actions.
“Americans can rest assured that our banking system is safe,” Biden said. “Their deposits are secure.”
Real estate
In real estate, the question is what will happen to the traditional spring buying market – and that answer is also unclear.
However, Mortgage News Daily claims that the average 30-year, fixed-rate mortgage fell from last week’s 6.76% to 6.57% on Monday. Many thing affect mortgage rates, but they closely follow the yield on a 10-year Treasury, which also fell, hitting a one-month low in response to the bank failures.
The Federal Reserve’s interest-rate decisions also impact mortgage rates. They directly influence adjustable-rate mortgages and indirectly affect 30-year loans. While predicting Fed decisions is an inexact science, the goal of increasing rates is to cause something short of a recession or an actual recession.
However, the bank failures – notably Silicon Valley Bank given its size – may give the Fed pause at its next rate meeting.
Will more banks be threatened? It’s complicated.
Silicon Valley Bank invested heavily in bonds, and those investments pay less if purchased before the Fed started raising rates. In addition, the bank invested heavily in tech startups, as it name suggests – and tech industry stock, usually more volatile, has been losing money recently.
Still, it’s the second largest bank failure in U.S. history after the 2008 failure of Washington Mutual.
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