Will the Recent 2023 Bank Struggles Impact the Mortgage Market?

Some of the most recent financial headlines across the country have to do with banking crisis issues. These issues are forecasted to continue throughout the rest of 2023. As banking issues continue some financial experts are forecasting that inflation could cool down.

Along with the cooling in inflation, there are some rocky situations expected to come. Some Parkland hopeful homebuyers may have noticed interest rates bouncing up and down a bit. Read on to find out why this is the case and predictions for where mortgage rates are expected to go.

Why are mortgage rates going up and down in 2023?

After mortgage rates rose quickly over the course of 2022 as a result of the Federal Reserves campaign to try and control inflation a 30-year fixed rate mortgage went from about 3%  in January to 7.08% in November at its peak according to information from lending giant Freddie Mac.

After hitting this concerning peak that no one expected to get so high in November interest rates began to fall a bit into January 2023. But going into February brought a flurry of economic reports and interest rates began to rise again. They rose half a percentage point in just one month.

We welcomed March with collapsing banks and this sent mortgage rates into decrease once again. Even though it may seem like a direct correlation the decrease in interest rates was not a result of the Federal Reserve's actions or the recent bank failures.

The actions of the Federal Reserve do indirectly impact mortgage interest rates by actions they take or actions they are expected to take. Recently the Federal Reserve shared its plans to raise interest rates by a quarter point in an attempt to fight high inflation as they also consider recent risks to financial stability in banking.

Bank failures recently have made the Federal Reserve's work more complicated but analysts have said that the banking meltdowns may have helped the Fed to bring down prices without raising interest rates. This is why the Federal Reserve also shared on Wednesday that it may be seeing an end to the rate hiking cycle.

A tighter reign on credit is expected to keep rates higher

Mortgage rates have a history of tracking a yield on 10-year US treasury bonds. This move is based on a combination of what is expected from the Federal Reserve's next actions and what actually happens through the Federal Reserve. It is also based on the reactions of investors from all of these factors. Historically as treasury yields go up mortgage rates follow. Likewise, when they go down mortgage rates go down.

When the Federal Reserve made an announcement treasury bonds took a dip and as expected so did mortgage interest rates. It is good for potential Parkland homebuyers to know that even though the two are linked (and did link) that the relationship between mortgage rates and bonds is a bit weaker currently.

It is expected that the current tight credit conditions due to the recent bank failures will help to keep mortgage rates from plummeting as we saw a few years ago. This may result in lenders having less access to funding sources which will also result in higher mortgage interest rates than falling treasury bonds would usually predict.

Parkland home buyers should expect to see a tighter and more reserved lending practice from mortgage lenders. It could mean that there will be tighter requirements for loan qualification as well.

Though it may be a little tighter in qualifying for a mortgage there's still good news for Parkland home buyers seeking to borrow money for a home purchase. Inflation is high right now but it is slowing and inflation is expected to cool in a slowing economy. This means that mortgage borrowers can expect a decrease in interest rates through the rest of the year says several financial experts.

The Mortgage Bankers Association experts forecast that mortgage rates may even come down to around 5.3% on a traditional 30-year fixed rate mortgage by the end of 2023.

If you are looking to purchase a home in Parkland we can help you find an amazing home that you will love at a price that you can afford.