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  •                   Mortgage Bankers Association (MBA): “Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
  •                   National Association of Realtors (NAR) senior economist and director of forecasting, Nadia Evangelou: “If inflation continues to slow down—and this is what we expect for 2023—mortgage rates may stabilize below 6% in 2023.”
  •                   Freddie Mac: Forecasts the average 30-year mortgage rate to start at 6.6% in Q1 2023 and end up at 6.2% in Q4 2023.
  •                   The average rate on the popular 30-year fixed mortgage dropped to 6.57% on Monday, according to Mortgage News Daily.
  •                   If rates continue to drop now, buyers could return to the housing market once again.
  •                   “This mini banking crisis has to drive a change in consumer behavior in order to have a lasting positive impact on rates. It’s still all about inflation,” said Matthew Graham, chief operating officer at Mortgage News Daily.

The demise of three banks last week has been sending shockwaves through an already fragile economy. Could it have an impact on real estate, too?

“The Silicon Valley Bank failure, along with a few other banks, means that the Federal Reserve cannot be so aggressive in raising its short-term interest rates,” says Lawrence Yun, chief economist of the National Association of REALTORS®. “Therefore, mortgage rates will decline.”

The average rate on the popular 30-year fixed mortgage dropped to 6.57% on Monday, according to Mortgage News Daily. That’s down from a rate of 6.76% on Friday and a recent high of 7.05% last Wednesday.

Mortgage rates loosely follow the yield on the 10-year Treasury, which fell to a one-month low in response to the failures of Silicon Valley Bank and Signature Bank and the ensuing ripple through the nation’s banking sector.

In real terms, for a buyer looking at a $500,000 home with a 20% down payment on a 30-year fixed mortgage, the monthly payment this week is $128 less than it was just last week. It is still, however, higher than it was in January.

Bank Failures Spark Panic

Last Friday, the shutdown of Silicon Valley Bank became the second largest bank failure in U.S. history and the largest since the 2008 financial crisis. The bank was known as a large supporter of tech startups. About 15% of the loans in Silicon Valley Bank’s portfolio were residential and commercial mortgages, The Real Deal reported. Signature Bank and Silvergate Capital, both big lenders in the cryptocurrency space, also shuttered their doors.

To help avoid mass panic, the Federal Reserve, Federal Deposit Insurance Corp. and Treasury Department created an emergency program to backstop all deposits using the Fed’s emergency lending authority. That granted depositors full access to their funds as of Monday, and the agencies vowed to make all depositors whole. Usually, banks only insure up to $250,000 per account ownership category through the FDIC, an agency that was created in 1933 after thousands of bank failures. In this case, the federal government’s move to backstop uninsured money has been viewed as an unusual step.

What the Forecast Means for You

Lending has become increasingly more costly for homebuyers as rates hit peaks not seen in 20 years by late 2022. While rates have leveled off since, they increased, once again, during the first two weeks in February. These higher interest rates mean higher monthly payments for borrowers.

This also means time is running out for homeowners who hope to lock in a lower interest rate by refinancing.

While the numbers for February are not in yet, anecdotally, agents and builders have said sales took a big step back in February as rates shot higher. So, if rates continue to drop now, buyers could return once again — but that’s a big “if.”

“This mini banking crisis has to drive a change in consumer behavior in order to have a lasting positive impact on rates. It’s still all about inflation,” said Matthew Graham, chief operating officer at Mortgage News Daily.

Markets now have to contend with the “inflationary impact of consumer fear,” he added, noting that Tuesday brings a fresh consumer price index report, a monthly measure of inflation in the economy.

As recently as last week, Federal Reserve Chairman Jerome Powell told members of Congress that the latest economic data has come in stronger than expected.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said.

While mortgage rates don’t follow the federal funds rate exactly, they are heavily influenced by both the Fed’s monetary policy and its thinking on the future of inflation.

Seattle among cities likely to see big slump in housing prices.


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