How do turmoil in US banks affect the housing market?

The turmoil in the US banking sector is already having spillover effects on the country’s ailing housing market, which has been hit by rising mortgage rates over the past year, according to industry experts.

The US economy was shaken this week as the implosion of Silicon Valley Bank, Signature Bank of New York and Silvergate Capital raised concerns about the spread of contagion. Those concerns escalated on Friday as investors noted problems in two other banks – Credit Suisse and First Republic.

On the downside, problems in the banking sector could further damage housing prices in activity on the West Coast — where many city markets have already been deemed “overheated” in the wake of the pandemic wave.

“Some buyers are canceling their contracts or opting out of their home search because they work in technology and are worried about losing their jobs,” Bay Area Redfin principal Shelley Rocha said in a statement.

“The spike in layoffs in tech was already causing jitters, and now bank failures are adding to jitters for buyers.”

SVB was the second largest bank failure in US history.
Anadolu Agency via Getty Images

At the same time, the banking industry’s struggles are likely to lead to cooling efforts regarding long-term mortgage rates, which have climbed back above 7% through some measure as the Federal Reserve raises interest rates further.

“The failure of the Silicon Valley bank, along with a few other banks, means the Fed can’t be too aggressive in raising short-term interest rates,” he said. Lawrence Yun saidChief Economist at the National Association of Realtors. “So, mortgage rates will go down.”

The average 30-year fixed rate mortgage rate fell to 6.6% for the week ending March 16, according to data from Freddie Mac.

Prices posted their first weekly decline in over a month.

House for sale
Economic concerns may push some homebuyers and sellers in Silicon Valley to sit on the sidelines.
Bloomberg via Getty Images

Signs of falling mortgage rates coincided with an uptick in buying activity. Applications for mortgage purchases jumped 7% for the week ending March 10 compared to the week before, according to data from the Mortgage Bankers Association — although they were still down 38% year over year.

“Buyers flipped when prices fell because they are very volatile at the moment, which shows that there are a lot of people waiting for the right time to enter the market,” he said. he said in a blog post.

Even with a potential drop in mortgage rates, housing market activity remains relatively flat compared to last year.

Homebuyers’ average monthly mortgage payments continue to hover near an all-time high of $2,556 — up 24% from a year ago, according to Redfin data.

House for sale
Mortgage rates fell this week for the first time in more than a month.
Getty Images

The housing market will get its next sign about the path of mortgage rates at the close of the next meeting of the Federal Reserve on March 22nd.

Investors are currently pricing in a 68.6% chance that the Federal Reserve will raise benchmark interest rates by a quarter of a percentage point and a 31.4% chance that they will pause increases, according to CME Group’s FedWatch tool.

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