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The economy has been shaken by the recent collapse of multiple banks, including Silicon Valley Bank, which may have implications for the real estate industry, according to Lawrence Yun, chief economist of the National Association of REALTORS®. Yun suggests that due to bank failures, the Federal Reserve may adopt a less aggressive approach to raising short-term interest rates, resulting in a potential decrease in mortgage rates, which could stimulate the housing sector.
Freddie Mac reports that mortgage rates have been steadily increasing in the past few weeks, with 30-year fixed-rate loans averaging 6.73% last week. However, on Monday, mortgage rates decreased by approximately 50 basis points from the previous week. When there is panic in the financial market, investors often turn to safer assets, such as U.S. Treasury notes and bonds. As a result, mortgage rates tend to follow the movement of Treasury yields, which are currently declining.
Yun also points out that a financial market panic can generate a mechanical economic stimulus through lower interest rates. Falling mortgage rates usually positively impact the housing sector, particularly when there are job additions to the economy. However, if rates continue to decrease, more homebuyers may enter the housing market.
While the bank failures have caused panic and potential job losses, particularly for California tech companies that rely on Silicon Valley Bank funding, Yun believes that lower mortgage rates could encourage homebuyers nationwide to enter the market. The situation’s outcome remains to be seen, but the federal government has taken measures to backstop all deposits to prevent any potential adverse effects.
