Ultimately, it leads to higher financing costs for American homebuyers.
New mortgages, in turn, need to be competitive with secondary market yields in order to draw investor interest. And so the cycle continues.Treasury yields have gone down since the start of the banking crisis that SVB's failure spawned — something of a classic flight to quality mixed with bets that the Fed will need to stop raising rates soon because, you know, banking crisis.
But with mortgage spreads going up, much of the decline in the benchmark rate doesn't make its way to consumers taking out new home loans. For example, the 10-year Treasury declined about 0.7 percentage points over the last month, while the average 30-year mortgage, per Freddie Mac, declined by just 0.4 percentage points.It's not surprising that mortgage spreads would widen in response to everything that's going on," says Eric Hagen, mortgage and specialty finance analyst at BTIG.
And given the uncertainty in the banking sector — and potential lending pullback — spreads are less likely to head back down soon, he adds.
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