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Bank failures cause mortgage rates to drop

BusinessReal EstateBank failures cause mortgage rates to drop
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A residential neighborhood in Austin, Texas, on Sunday, May 22, 2022.

Jordan Vonderhaar | Bloomberg | Getty Images

The average rate on the popular 30-year term mortgage fell to 6.57% on Monday mortgage news daily, This is down from Friday’s rate of 6.76% and last Wednesday’s recent high of 7.05%.

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Mortgage rates loosely follow yields 10 year treasurefell to a one-month low in response to the failures of Silicon Valley Bank And signature bank and ripples coming through 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 this week is $128 less than last week. However, it is still higher than in January.

So what does this mean for the spring housing market?

In October, rates rose to more than 7%, and that marked the beginning of a real downturn in home sales. But then rates started falling in December and by the end of January were near 6%. This led to an astonishing 8% monthly jump pending home sales, Which is the National Association of Realtors’ measure of contracts signed on existing homes. Sales of newly constructed homes, as measured by the Census Bureau by contracts signed, also grew more than expected.

While the numbers for February are not in yet, realistically, agents and builders have said that sales took a big step back in February as rates increased. So if rates continue to fall now, buyers could once again return – but that’s a big “if”.

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

Markets now have to grapple with the “inflationary impact of consumer fears”, he said as a fresh Consumer Price Index report comes out on Tuesday, a monthly measure of inflation in the economy.

As recently as last week, Federal Reserve Chairman Jerome Powell told members of Congress The latest economic data came in stronger than expected.

“If the totality of the data indicates that more rapid tightening is warranted, we stand ready to increase the pace of rate hikes,” Powell said.

While mortgage rates don’t exactly follow the federal funds rate, they are heavily influenced by both the Fed’s monetary policy and its outlook on the future of inflation.

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