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Again, if your mortgage lender fails or files for bankruptcy, nothing should change for you personally. All of your loan terms — your interest rate, monthly payment and remaining balance — will remain the same.
Neither the actions of the Federal Reserve nor the bank failures directly impact mortgage rates. But rates are indirectly impacted by actions that the Fed takes or is expected to take, as well as the health of the broader financial system and any uncertainty that may be percolating.
In general, interest rates are likely to rise if the housing market crashes. This is because when the housing market goes down, it's often a sign that the overall economy is doing poorly too. And when the economy does poorly, investors typically look for safer investments like government bonds and mortgages.
For people looking to buy a home, a recession can bring some advantages. When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.
But bills—including your mortgage payment—will continue to come due, and you'll still be responsible for paying them. A mortgage lender may, however, agree to suspend or reduce your payments or hold off on foreclosure if you're experiencing a financial hardship.
The National Association of Realtors expects mortgage rates will average 6.8% in the first quarter of 2024, dropping to 6.6% in the second quarter, according to its latest Quarterly U.S. Economic Forecast. The trade association predicts that rates will continue to fall to 6.1% by the end of the year.
After all, higher rates equate to higher minimum payments. So, you may be wondering if, and when, mortgage rates might fall to 3% or lower again - and whether or not it's worth waiting to buy a home until they do. Although rates could fall to 3% again one day, it's not likely to happen any time soon.
A market crash would likely push prices down and make housing cheaper, but it would remain unaffordable for many if the crash was caused by a larger recession.
Average 30-Year Fixed Rate
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
Over a few weeks in the spring of 2023, multiple high-profile regional banks suddenly collapsed: Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. These banks weren't limited to one geographic area, and there wasn't one single reason behind their failures.
Banks provide loans to individuals and businesses for property purchases, which fuels the housing market. When banks fail, there is often a reduction in lending, which can slow down the housing market. The collapse of banks can also have a broader impact on the economy.
There are 5 bank failures in 2023. See detailed descriptions below. For more bank failure information on a specific year, select a date from the drop down menu to the right or select a month within the graph.
Interest rates usually fall during a recession. Historically, the economy typically grows until interest rates are hiked to cool down price inflation and the soaring cost of living. Often, this results in a recession and a return to low interest rates to stimulate growth.
Banking Turmoil 2023
The collapse of banks, such as Silicon Valley Bank and First Republic Bank, resulted from deficiencies in risk management and a lack of proactive supervision; they are unrelated to the bad loan practices of the subprime mortgage crisis of 2008.
Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.
There are some potential upsides to buying a home during a recession, though, if you're financially able to do so. Notably, there will be less competition, which could help you find a great property that you otherwise couldn't and make a great investment in your future.
S&P/Case-Shiller Home Price Indices: Home prices fell by 18.2% in November 2008 compared to November 2007 in 20 major metropolitan areas. This was the largest annual decline in the history of the index, which dates back to 1987. For the whole year of 2008, the index showed a decline of 15.3% compared to 2007.
Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates. Previously, Goldman had expected the 30-year mortgage rate to be at 7.1% by the end of 2024 and at 6.6% by the end of 2025.
The predictions made by the various analysts and banks provide insight into what the financial markets anticipate for interest rates over the next few years. Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025.
Mortgage rates change all the time. So a good mortgage rate could look drastically different from one day to the next. Right now, good mortgage rates for a 15-year fixed loan generally start in the high-5% range, while good rates for a 30-year mortgage typically start in the mid-6% range.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates,” said NAR chief economist Lawrence Yun in the association's December pending home sales report. NAR forecasts that sales will rise by 13 percent in 2024.
What is clear is that mortgage rates will continue to drop in the New Year and home prices will recover by 2025, according to Fannie Mae. Fannie Mae expects mortgage rates to decline gradually over the next two years, reaching 6.9% for the 30-year mortgage by 2025.
The MBA's forecast suggests that 30-year mortgage rates will fall into the 6.1% to 6.9% range in 2024, and NAR's forecast is very similar, predicting that rates will remain in the 6.1% to 6.8% range.
The short answer is no. Banks cannot take your money without your permission, at least not legally. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder, per bank. If the bank fails, you will return your money to the insured limit.