In a shocking turn of events, mortgage rates plummeted on Monday after Silicon Valley Bank’s sudden collapse triggered concerns of a larger banking crisis. According to Mortgage News Daily, the average 30-year fixed mortgage rate dropped to 6.57% from Monday’s 6.76%, which is a marked decrease from last Wednesday’s high of 7.05% Tumble amid Silicon Valley Bank.
Here are 3 Points of Tumble amid Silicon Valley Bank;
What Does The Wall Street Say?
Since mortgage rates follow the 10-year Treasury bond yield, which dropped on Monday to its lowest level since early February, the Federal Reserve’s actions or announcements heavily impact Treasury yields. When Treasury yields fall, mortgage rates do as well. Wall Street now predicts that the Fed will pause its aggressive interest-rate hike campaign after the bank’s failure on Friday. As a result, the probability of the Fed’s rate hike campaign pausing next week increased to 28% on Monday, up from 0% the previous day, according to data from the CME Group’s FedWatch tool. Meanwhile, approximately 71% of traders anticipate a typical quarter-point hike in Tumble amid Silicon Valley Bank.
“This has to do with the market shifting its expectations for Fed rate hikes in the rest of 2023,” said Matthew Graham, Mortgage News Daily’s chief operating officer. “Specifically, the market now sees the Fed hitting a ceiling rate that’s more than 1.5% lower than it was at the beginning of last week. If that continues to be the case in the coming days, mortgage rates could move down even more.”
Good Opportunity for Potential Homebuyers
Lower mortgage rates could provide some relief for potential homebuyers who have been struggling with housing affordability at its lowest point in decades. According to the Atlanta Fed’s Housing Affordability Monitor, the median American household would need to spend approximately 42.9% of its income to afford a median-priced home, as of December 2022. This is worse than during the peak of the 2008 housing bubble, which is concerning. The rapid decline in affordability is due to the highest mortgage rates in years and steep home prices in Tumble amid Silicon Valley Bank.
During the COVID-19 pandemic, home prices soared at a pace not seen since the 1970s, while mortgage rates hit record lows. Homebuyers, who were flush with stimulus cash and seeking more space during the pandemic, flocked to the suburbs. At the height of the market, demand was so high, and inventory so low, that some buyers waived home inspections and appraisals or paid hundreds of thousands over the asking price.
However, the frenzy came to an end when the Federal Reserve embarked on the most aggressive interest rate hike campaign since the 1980s, attempting to slow the economy and quash runaway inflation. Homebuyer demand dried up as a result, further weighing on home prices. The median home price for a house sold in January was $383,249, a drop of 11.5% from the peak of $433,133 in May, according to Redfin in Tumble amid Silicon Valley Bank.
Home Value Keep Rising
Despite the soaring mortgage rates making homeownership unaffordable for a significant number of Americans, the cost of owning a home has not come down in many parts of the country. As of December, the combined value of all U.S. homes had risen by 6.5% compared to the same period a year earlier. Even though potential buyers might be priced out of the market, this hasn’t stopped the value of homes from continuing to surge upward, further compounding the affordability issue for those trying to enter the housing market for Tumble amid Silicon Valley Bank.