Predictions for this year’s mortgage rates and real estate trends shifted this week after the second-largest and third-largest bank failures in history occurred. Investors quickly withdrew their funds from banks across the country causing changes in the Fed’s plans to reduce inflation.
The Federal Reserve had planned on making large rate hikes earlier this year, but it seems they are now taking a more versatile approach to tackling the economic crisis. On Wednesday, the Federal Reserve decided to raise the federal funds rate by 25 basis points to 4.75%-5% - its ninth consecutive rate hike.
"The collapse of two large banks drives home that we do have problems in the banking system, which could get worse if the Fed moves too aggressively going forward," Dean Baker, senior economist with the Center for Economic and Policy Research, said in an email last week.
The Fed also reported they may be at the end of their rate hike cycle. The two bank failures and resulting panic may have naturally reduced inflation a bit for the time being.
While neither the bank failures nor the Fed’s rate hikes have a direct impact on mortgage rates, the rates are indirectly affected by the health of the broader financial system.
Mortgage rates fell right after the banks began collapsing in early March. In November of 2022, mortgage rates were at an average of 7.08%, and by now they have fallen down to 6.3%.
Moving forward, analysts are predicting that mortgage rates will fall even lower throughout the rest of the year as the economy slows down. Then home purchases should pick back up again to usual speed.
“Homebuyers in 2023 have shown themselves to be quite sensitive to any changes in mortgage rates,” Mike Fratantoni, Mortgage Bankers Association senior vice president and chief economist, said.
Even though these rates are expected to continue to fall in the oncoming months, tighter credit conditions from lenders due to the bank failures should limit any dramatic plunges.
The Mortgage Bankers Association forecasts that mortgages with a 30-year fixed rate will fall to around 5.3% by the end of 2023.
Yet, these are merely predictions and rates will continue to be volatile until the industry and the economy stabilizes. For now inflation remains elevated.
Hannah Jones, an economic data analyst at Realtor.com, added that the good news is that the continued strength of the job market means that both sellers and buyers are in a favorable financial position heading into the spring housing market.
The number of home sales increased recently in February, climbing 14.5% month over month, for the first time in a year according to the National Association of Realtors.
The demand for housing is still very strong, and that will continue as housing inventory remains low. But home buyers may not have the luxury of waiting for that ideal interest rate they desire.
“Home buyers should accept that if they wait for interest rates to fall substantially, they might wait longer than they expect,” Holden Lewis, home and mortgage expert at NerdWallet, said.
Be prepared for any outcome in the housing market, and keep following us for more key financial information. Blue Streak Doc is available to manage your document retrieval and property reports to help protect your portfolio. Give us a try and get your 5th order FREE!