Amidst Bank Havoc, Mortgage Rates in Housing Market Plunge to 5-Week Lows
Data obtained from the Mortgage Bankers Association show that mortgage rates experienced a decline last week, reaching their lowest point in more than a month. The fall in rates can be attributed to a decline in trust in the U.S. banking system, which has brought relief to potential homeowners.
The interest rates for home loans and the cost of houses are decreasing.
Last week, the regular 30-year fixed interest rate for home loans went down from 6.71% to 6.48%. This is the lowest it has been since mid-February and it is also the biggest drop it has had since November.
According to a survey, there was a 3% increase in mortgage applications last week. This is because buyers are making the most of the considerable decrease in home prices.
After a chaotic period for the banking industry, which included the collapses of Silicon Valley Bank and Signature Bank - two of the biggest failures in US banking history - investors sought refuge in more secure options like government bonds.
During the two-week stretch up until last Friday, the returns on 10-year U.S. Treasury notes weakened by 70 basis points and hit 3.4%. This, in turn, had an effect on the mortgage rates, which are susceptible to change based on the performance of long-term Treasury yields.
However, those wishing for a drastic drop in mortgage rates like the one seen in 2020 may not have the same luck. This is because the yields on 10-year government bonds surged to over 3.6% on Wednesday, and there doesn't seem to be a reliable connection between yields and mortgage rates anymore.
According to economist Joel Kan from the Mortgage Bankers Association, the difference between 30-year mortgage rates and 10-year Treasury yields is currently around 300 basis points. This is a lot higher than the usual 180-point difference. Kan mentioned that the reason for this increase is due to more "market volatility" related to mortgage-backed securities.
Things to keep an eye on
At 2 p.m. today, the Federal Reserve will have a meeting to decide if they will increase the federal funds rate. This will have a significant impact on the interest rates that banks charge each other for borrowing money overnight. Most people predict that the central bank will increase the rate by 25 basis points. If this happens, it will also cause mortgage rates to go up as well. The meeting was previously scheduled so the announcement will be made directly after the meeting ends.
Taking out a mortgage has become much more costly nowadays compared to the early parts of 2022 where 30-year mortgage rates were slightly above 3%. The rates of mortgages increased substantially throughout the year due to the hike in the federal funds rate by the Fed; it went up from nearly zero to 4.5% to 4.75%, and the escalation in recession worries led to a surge in bond yields.
Over the past eight months in the United States, there has been a decrease of 12.3% in the median sales of previously owned homes.
The Implications of Bank Problems on Your Mortgage (Article from the Wall Street Journal)
The real estate industry has witnessed a drop in home prices for the first time in 11 years, while the number of sales has noticeably increased. This information has been reported by Forbes.
The upcoming interest rate decision by the Federal Reserve could either confirm the current state of crisis or increase the likelihood of a recession happening soon. This is according to Forbes.
