With Bank Failures Come Lower Interest Rates

Homebuyers finally get a reprieve in the wake of big bank collapses.

Everest talks rate drops—and good news for the spring housing market!

Recent headlines out of Santa Clara, California and New York, New York have people worried about the future of finance.

The high-profile failures of Silicon Valley Bank and Signature Bank instilled even greater pessimism in a country plagued by rising interest rates, sky-high cost of living, and a (somewhat) stalled housing market. For a while there, the bad news just kept coming!

But by the middle of March, the clouds parted, and mortgage professionals finally found their silver lining amidst widespread economic turmoil.

As these big banks went belly up, mortgage rates went down!

Experienced loan officers likely saw it coming. But for the average Joe and Jane, the rate drop came as a huge relief (not to mention, a huge surprise!). Why would turbulence in the financial sector result in a reprieve for homebuyers? It may seem complicated, but it’s really quite simple.

Let us turn this scary banking situation into a teachable moment.

Banks’ loss = homebuyers’ gain

Once the shocking headlines died down, real estate professionals weighed in on how the bank collapses are actually a gift to the housing market.

“When there’s any kind of economic uncertainty, mortgage rates tend to go lower,” writes economist Ali Wolf. “Going into the collapse of Silicon Valley Bank, mortgage rates were getting pretty close to 7%. Mortgage rates were rising, and it was starting to look bad for home shoppers.”

In the aftermath of the collapse, mortgage rates actually dropped for the first time in five weeks. It was a much-needed break for realtors, mortgage brokers, and homebuyers everywhere, and a wonderful morale boost as the spring housing market kicks off.

“Even a fraction of a percentage point decrease can equal significant savings,” says Clare Trapasso of Realtor.com. “Many economists believe the Federal Reserve will reverse course and slow—or even pause—its anticipated rate hikes in response to the bank failures. The Fed’s steady cadence of rate hikes over the past year has pushed up mortgage rates, which are separate but influenced by the Fed’s rates.”

In other words, experts are hopeful that rates could continue to drop in the coming months.

For buyers who went into hibernation this winter, it’s time to get out and start looking!

While you focus on the home search, Everest prepares you for what to expect in Spring 2023. Will we see the crazy bidding wars of last year? Are prices looking any better? What’s going on with inventory? Here’s what people are saying…

Spring Housing Market 2023

An honestly optimistic outlook

Things will be calmer.

Inventory will remain scarce in the coming months, but that’s no reason to sulk. Now that mortgage rates have returned to some semblance of ‘normal,’ you won’t see the massive throngs of people lined up like last year. Markets that are considered ‘more affordable’ will see slightly more activity, but the buyer frenzy of 2021-2022 is over.

Personal finance will be a factor.

Money is the key! According to Forbes, today’s buyers are paying roughly 31% of their household income on a mortgage. That number is lower than last year, but higher than the years leading up to the pandemic. So, be sure to partner with a skilled, experienced loan officer to explore options that are financially right for you. 

Competition won’t be as cutthroat.

Demand is still there, so other buyers may be vying for the same property as you. But experts are confident that today’s economic conditions will prevent the ridiculous bidding wars of last year. Sellers in popular markets are still enjoying multiple offers. But according to Bankrate, things have “calmed down significantly” despite low inventory.

Motivations will be different.

This spring, insiders expect the return of the typical American homebuyer. That is, people who are looking to purchase because of a major life event like a new marriage, career change, or birth of a child. Last year, those same buyers had to compete with people who were only looking to lock in a dream mortgage rate. Eliminate them from the equation!

Sellers will be humbled.

Zillow anticipates that “well-priced, well-marketed” homes will receive solid offers this spring. Still, listings will sit longer than they did in the past couple of years, and motivated sellers may have to initiate a price cut to get things moving. The power balance won’t exactly be equal, but buyers will enjoy greater influence in the months to come.

Everest says: Happy home shopping!

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