May 6th, 2023 12:01 PM by Salim (Sam) Kader MLO# 130505
March 2023 - Concerns about banking sector in the US and Europe caused investors fled to quality this week and to invest in relatively safer assets including Mortgage Backed Securities (MBS) with rates improved for the week. The Fed again increased Fed Funds rate by 0.25% on March 22 2023 - this is the ninth time the committee has increased rates in the last 12 months. The Fed has raised interest rates at the fastest pace since the 1980s to try to cool a hot economy but yet inflation has been surprisingly stubborn, and the job market remains strong. The Fed statement released after the meeting indicated economic signals including continuing inflation and the strong labor market warranted the rate hike while expressing confidence in the U.S. banking system. The Committee signaled that some additional rate increases may be appropriate before inflation is brough to the Fed's target range of 2.0%. The latest projections from officials for the terminal (peak) rate remained near 5.1% in 2023 indicating that they anticipate one more 25 basis point hike before the central bank ends its fight against runaway inflation. Fed Chair Jerome Powell suggested at his post-meeting news conference that "In assessing the need for further hikes, we will be focused on incoming data and the evolving outlook, an in particular on our assessment of the actual and expected effects of credit tightening." Officials forecast that next year they would lower rates more slowly than they had anticipated so that rate linger at 4.3% by the end of 2024. The Fed target range is between 5% to 5.25% (today's Fed Funds rate is 4.75% so there's room for more rate increases).
How the failures of Silicon Valley Bank and Signature Bank have reverberated across Seattle's housing market. Most potential homeowners are hoping that bank instability would translate into lower mortgage rates. Experts are eyeing two possible scenarios to the Seattle market.
Scenario 1 - The Fed could slow down the rate hikes it has used to quell inflation that could ripple out to lower mortgage rates. The Fed has raised fed-fund rates nine times since 2022 from less than 1% to a target range of 5.0% to 5.25%. Rate-sensitive buyers have been locked out of searching for a home but a decline in mortgage rates could provide an opportunity for some would-be buyers to get off the sidelines.
Scenario 2 - In tech-reliant cities like Seattle where home prices have already cooled fast, ongoing banking instability combined with tech-layoffs could spook some homebuyers and sellers even further. Worries home shoppers could pause their searches and sellers could decide not to list until the market settles down.