In wake of several recent bank failures, mortgage rates have dropped this past week. However, continued uncertainty will likely dishearten many potential homebuyers and keep housing prices high. The current 30-year fixed-rate mortgage averaged 6.60% this past week, up 2.44% from one year ago. Rates had slowly begun to increase again since February, that is until the collapse of several banks over the past week, which has caused investors to place their bond in treasury bonds, generating lower yields, which mortgage rates have followed. Investors' recent turn to treasury bonds has led to a decline in its yields from 4% at the beginning of last week to 3.4% this week., which directly aligns with the drop in mortgage rates. While the Fed does not set rates that borrowers pay on mortgages directly, these rates act in accordance with yield on 10-year treasury bonds, which adjust in anticipation of the Fed's actions.
This slight drop in mortgage rates has caused some prospective homebuyers to act fast, leading to an increase in mortgage applications for the second week in a row. "Both home-purchase and refinance activity saw gains last week but remain below year-ago levels," said Bob Broeksmit, CEO of the Mortgage Bankers Association. "Anticipated further rate declines may spur additional application gains as the spring home buying season begins." A similar situation to what is currently transpiring happened back in December of 2022 and January of 2023, where lower mortgage rates spurred those quick on their feet to act fast and lock in lower mortgage rates. However, for a majority of prospective homebuyers, ongoing economic uncertainty stifles many from moving forward in the home buying process.
https://www.cnn.com/2023/03/16/homes/mortgage-rates-march-16/index.html
4 comments:
Not only have mortgage rates gone up, but the average sales price of houses sold has significantly since Q2 of 2020 according to FRED. A combination of these can cause homeowners to pay significantly more than they were paying pre-pandemic and even during the pandemic. I am curious as to if this jump in sales prices can be attributed to institutional investors becoming increasingly present in the housing market. But overall, the increase in rates can be a deterrent for people looking to purchase homes.
This comes as a huge surprise as the housing market had finally started to cool down at the end of 2022 and it's now starting to heat up again. This creates even more hardships for young people and others searching for their first home. Unfortunately, this is another sign that we're partially following in the footsteps of the 2008 financial crisis. History often does repeat itself in some way.
Mortgage rates are now taking a sharp decline which to many can seem as a good thing because it allows for cheaper mortgages when buying a house but this is a sign that the economy is going into a recession. The collapse of these banks are the biggest financial collapse of U.S. banks since the crash in 2008
It is interesting to see how rates have been impacted by recent failures of investment banks. If rates continue to fall, I think we will see more consumers buying houses. However, I do not think that this is necessarily a good thing given the current economic environment as there is still much uncertainty.
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