Mortgage rates have fallen as a result of bank failures.

According to Mortgage News Daily, the average rate on the popular 30-year fixed mortgage fell to 6.57% on Monday. This is down from 6.76% on Friday and a high of 7.05% on Wednesday.

Mortgage rates are weakly correlated with the 10-year Treasury yield, which plummeted to a one-month low in response to the bankruptcies of Silicon Valley Bank and Signature Bank, as well as the resulting ripple effect throughout the nation’s banking system.

In practical terms, the monthly payment for a buyer looking at a $500,000 property with a 20% down payment on a 30-year fixed mortgage is $128 less this week than it was last week. That is, however, still higher than it was in January.

So, what does this imply for the spring real estate market?

Rates jumped over 7% in October, kicking off the genuine slump in home sales. However, rates began to fall in December and were approaching 6% by the end of January. This resulted in an unexpected 8% monthly increase in pending house sales, as measured by the National Association of Realtors as signed contracts on existing homes. Sales of newly built homes, as measured by signed contracts by the Census Bureau, also increased significantly more than projected.

While February figures are not yet available, agents and builders have reported that sales took a significant step back in February as interest rates rose. Thus, if interest rates continue to fall, buyers may return — but that’s a big “if.”

Mortgage demand decreased sharply last week, despite additional reductions in interest rates.

“This small banking crisis has to generate a change in consumer behavior in order to have a permanent positive impact on rates. “It’s still all about inflation,” said Matthew Graham, CEO of Mortgage News Daily.

Markets must now deal with the “inflationary impact of consumer concern,” he continued, stressing that a new consumer price index report, a monthly indicator of inflation in the economy, is due out on Tuesday.

Last week, Federal Reserve Chairman Jerome Powell informed members of Congress that the most recent economic data was better than expected.

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“If the totality of the data suggests that greater tightening is merited, we would be willing to accelerate rate hikes,” Powell said.

While mortgage rates do not exactly track the federal funds rate, they are highly influenced by both the Fed’s monetary policy and its outlook on inflation.

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