Well, buckle up, because I’ve got a real doozy of a tale for you. Picture this:
“Havoc in the Banking World – Could it Mean Rainbows for Prospective House Hunters?”
So, Silicon Valley Bank and Signature Bank have gone belly-up. A bit unfortunate, eh? Well, in the grand circus of the financial world, this wee tragedy has tongues wagging about the possibility of more banks taking a nosedive. But here’s the kicker: amidst the chaos, it might actually spell good news for people dreams of owning a four-wall paradise – because, my friend, we could be looking at moving sidewalks in mortgage rate trends!
Oh yes, Lisa Sturtevant, head numbers lady at Bright MLS, confirmed it. The ruckus kicked off by these bank failures could shake things up a bit with the U.S. economy – and hey, who knows which way mortgage rates might tumble?
### The Federal Reserve: Fearless Fighter Against Inflation or Saviour to Homebuyers?
One direction this money mayhem could lead us is to a U-turn by the Federal Reserve on monetary policy. You see, recently, the Fed has been tackling inflation like it’s their own personal Goliath: from reaching a scorching 9.1% last June, it’s now managed to cool down to 6% (although, let’s face it, that’s still quite a bit off from their nice and cozy 2% long-term goal).
In their quest against this inflation beast, the federal funds rate got a bump up from near-zero back in March of 2022 up to a more substantial range of 4.5% to 4.75%. Now, bear in mind that it’s this rate that determines how much banks will shell out to loan money to each other. While it doesn’t directly dictate mortgage rates, it does have its fingers in the pie when it comes to borrowing costs in general. But here’s a twist: rumours are afoot that the Fed may be softening up their stance, maybe even slowing down with the rate hikes.
Sturtevant puts an angle on it by saying, “If the Fed pulls back on planned rate hikes, it would signal concerns about the financial sector and the wider economy”. So, could this mean a halt in these mortgage rates hikes, or dare I say it, a dip?
### How Treasury Yields Could Tip the Mortgage Rate Scales
In the midst of all this money maelstrom, another contender that could influence mortgage rates is the state of U.S. Treasury yields. When the financial weather starts looking gloomy, investors like to huddle up in the secure embrace of government bonds. Usually, the 10-year Treasury note is the one to watch for mortgage rates’ movements.
Past trends reveal that mortgage rates perform a well-choreographed dance with the 10-year Treasury yield. When Treasury yields leap up, so do mortgage rates and vice versa. Usually, mortgage rates hover like a protective mama bird, about 1.8 to 2 percentage points above the 10-year yield. Well, lo and behold, following the recent banking brouhaha, 10-year Treasury yields took quite the nose-dive. And guess who followed suit? You got it, mortgage rates!
Just how much of an impact this could have on the mortgage scene, we’ll have to wait with bated breath until Freddie Mac spills the beans with their benchmark data on Thursday.
### Attention Homebuyers: Lower Mortgage Rates Might be Around the Corner!
Maybe, just maybe, this could be your golden ticket! With the spring homebuying season all revved up, prospective buyers could do with a leg up. This could very well be it.
Oizza Olsen, the big wheel economist at Zillow, delivers her take saying, “If rates drop and stay lower, that will help many with affordability.”
However, she adds a word of caution. If these banking ripples become waves of economic struggle, we could be looking at a recession darker and denser than a black hole. This could lead to a trickle of apprehensive buyers, ultimately causing home values to plummet even if mortgage rates do drop.
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More Tales from the Financial Storybook:
– [Buyers and Sellers Agree: The Housing Market is Pretty Rough Right Now](/buyers-sellers-housing-market-pessimism/)
– [What the Silicon Valley Bank Collapse Means for You (Even if You Don’t Have Money There)](/svb-collapse-what-it-means/)
– [Are Your Bank Deposits Covered by FDIC Insurance? Here’s How to Know](/are-bank-deposits-fdic-insured/)
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Please bear in mind, dear reader, that the tone of this one-of-a-kind article is modifiable. If you want to sprinkle in a few keywords or tailor it more towards toots in tuxedos or lads in Levi’s, give me a shout!