How SVB and Signuture Bank Failures are affecting your mortgage.
Recent collapses of banks like Silicon Valley Bank and Signature Bank have raised concerns that other banks may also fail, leading to uncertainties in the economy that could cause a shift in mortgage rate trends. Such uncertainties could lead to two possible outcomes. Firstly, a perceived weakness in the financial sector could cause the Federal Reserve to alter its monetary policy, which could lead to a complete pause or slower rate of increase in short-term rates, which will stabilize or even lower mortgage rates. Secondly, if the collapse of banks causes long-term bond yields to tank, which has strong implications for mortgage rates, buyers could be sent back into the market, which could result in good deals for mortgage seekers. The closures of Silicon Valley Bank and Signature Bank are not expected to have a material impact on the Western US housing market since the failures are idiosyncratic, and the government has promised to pay all depositors.
There were measures that were announced by the US Treasury, Federal Reserve and Federal Deposit Insurance Corp. to ensure that depositors are able to access their money. The most significant effect of the bank collapses is likely to be lower mortgage rates, as bond yields fell sharply in the wake of the news. Mortgage rates closely track the 10-year Treasury yield. The drop in yields is expected to benefit US home buyers, according to Taylor Marr, deputy chief economist at Redfin. The typical home buyer may actually find good deals on mortgages if they shop around, Marr said. The direct impact of the bank failures on the housing market is likely to be small, according to property economist Sam Hall at Capital Economics. The collapse of the two banks is unlikely to lead to a meltdown in housing, as seen in the subprime lending and foreclosure crisis in 2008.
So what does this mean? In the short term, if you are in the market for a home, make a deal. The interests are lower than in recent weeks, or months and you might be able to find deals with sellers who are looking to escape their homes. That being said, no one has a crystal ball and who knows what the future is like with the feds Quantitative tightening policy, while simultaneously bailing out banks. Are we on the verge of a nationalized banking system? If banks are deemed too big to fail, what’s the risk? What does this mean for the everyday consumer? I guess time will tell, but until then, stay tuned because there’s never a dull moment in the US financial sector.