What the Silicon Valley Bank Failure Means for Mortgage Rates

All eyes and ears have been focused on the recent failure of Silicon Valley Bank (SVB). This is the first bank to fail since 2008 and everyone wants to know if this is an isolated case and what it means for the economy—including mortgage rates.

SVB, known primarily for its servicing of startup companies and venture capital money, actually had 15% of its loans secured by residential mortgages and commercial real estate.

Today, we will look at what we know so far about the Silicon Valley Bank failure and what it means for mortgage rates.

What happened with Silicon Valley Bank?

Earlier this month, it came to light that Silicon Valley Bank didn’t manage its investments or risk properly and couldn’t invest its way out of the situation. Rising interest rates decreased the value of their investments and the result was that the bank closed its doors.

This collapse brought a massive amount of uncertainty into the tech world (as SVB primarily served startups and investors) and the economy at large.

Ultimately, the U.S. government then took over SVB to stabilize the economy and the Federal Deposit Insurance Corporation (FDIC) guaranteed deposits that were higher than their $250,000 limit for insured deposits.

How are bank failures and mortgage interest rates connected?

The good news is that they’re not directly linked. However, any big shock to the economy can impact mortgage rates (generally rates move lower during periods of uncertainty). In this specific situation, the failure also likely influenced the Fed’s most recent decision on rate hikes to fight inflation. Again, the Fed doesn’t set mortgage rates, but they do tend to rise and fall together.

What effects have we seen so far?

It has only been a few weeks since SVB closed. With the government and other banks supporting the banking industry, we have not seen a widespread series of bank closures like 2008. We did see mortgage rates rise in February and the first part of March, due to the Fed’s rate hikes. Based on the most recent inflation data before the SVB failure, many experts thought the Fed would announce another larger hike on March 22.

However, the SVB failure changed things as the uncertain economy meant the Fed could not be as aggressive with their attempts to curb inflation. They recently announced a 0.25% rate hike on March 22—likely a smaller hike than we would have seen had SVB not failed.

So, we’ve seen that the timing of the SVB failure has aligned with lower mortgage rates in the near term.

What does this mean for the future of mortgage interest rates?

Many experts expect mortgage rates to continue to improve, but this is far from a sure thing.

What does this all mean for you if you’d like to purchase a home?

Since lower rates mean better affordability, we’ve seen more buyers entering the market. But unfortunately, existing-home inventory was already too low to meet demand.

In either case of rates on the rise or decline, building a new home can be a win-win. Here’s why: When you build a new home, you get exactly what you want without worrying about competition. And believe it or not, construction-to-perm loan rates are already below conventional mortgage rates! A custom home can be the perfect solution in this economy and housing market.

If you’d like to build a new home, please contact us at hello@newdimensionsinc.com or 800-406-8555. It’s a great time to build… especially in Northern Virginia! We’d love to create the custom home of your dreams.

Dream. Build. Live.