Mortgage rates plunged after bank failures

A residential area in Austin, Texas, Sunday, May 22, 2022.

Jordan Vonderhaar | Bloomberg | Getty Images

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

Mortgage rates are in line with yields 10-year TreasuryIn response to the setbacks, it fell to a one-month low Silicon Valley Bank and Signature bank and ripples in the country’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 is $128 less than last week. However, it is still higher than in January.

What does this mean for the spring housing market?

In October, rates jumped over 7%, starting a real slowdown in home sales. But rates began to decline in December and were at 6% by the end of January. That sparked a staggering 8% monthly jump in unexpected home sales, the National Association of Realtors’ measure of contracts signed on existing homes. Sales of newly built homes, as measured by the Census Bureau by signed contracts, were also much higher than expected.

Although February numbers are not yet known, agents and builders said sales took a big step back in February as prices rose. If rates continue to fall now, buyers may return — but that’s a big “if.”

“This mini-banking crisis will have to change consumer behavior to have a lasting positive effect on rates. It’s all about inflation,” said Matthew Graham, chief operating officer of Mortgage News Daily.

Markets now have to deal with the “inflationary impact of consumer fears,” he added, adding that Tuesday’s monthly measure of inflation in the economy will bring a new consumer price index report.

Last week, Federal Reserve Chairman Jerome Powell told members of Congress that the latest economic data came in stronger than expected.

“We would be willing to increase the pace of rate hikes if the body of data suggests that more rapid tightening is warranted,” Powell said.

Although mortgage rates do not exactly match the federal funds rate, they are strongly influenced by both the Fed’s monetary policy and its thinking about the future of inflation.

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