Home prices fell annually for the first time since 2012, but the collapse of Silicon Valley Bank brings more buyers to the housing market

  • House prices fell year-on-year in February for the first time since 2012, Redfin said.
  • But in March, the market shifted due to the collapse of Silicon Valley Bank.
  • As mortgage rates fell, more homebuyers entered the market.

Home prices fell year-on-year in February for the first time since 2012, but new demand in recent weeks could already change those conditions, Redfin said on Friday.

The median home sale price fell 1.2% last month to $386,721 as the Federal Reserve’s continued rate hikes fueled mortgage growth, keeping buyers at bay and forcing sellers to cut prices.

In February, the prices of 14.2% of homes for sale were reduced, more than double the 5.7% level last year, as mortgage rates jumped almost a full percentage point this month.

But banking turmoil changed the outlook this month as 30-year fixed mortgages peaked at 6.88% by the end of February before falling to 6.55% by Thursday.

“It is worth noting that the housing market reversed in March following the collapse of Silicon Valley Bank,” Redfin said in a report. “The ongoing turmoil in the banking sector has significantly reduced the likelihood that the Federal Reserve will raise interest rates this year. This caused mortgage rates to fall, bringing more homebuyers back into the market.”

In fact, according to the Mortgage Bankers Association, total U.S. mortgage applications rose 6.5% in the last week alone.

Meanwhile, markets still expect the Federal Reserve to raise rates by 25 basis points at its policy meeting next week. But after that, they start cutting rates later this year.

This is as investors expect the central bank to ease the tight conditions that contributed to the collapse of the SVB and are currently putting other regional banks under stress.

The National Association of Realtors also came to a similar conclusion on mortgage rates and the banking crisis.

“We expected mortgage rates to drop to the lower 6% range sometime in the second half of 2023, but we may now see that level in the coming weeks,” NAR Senior Economist Nadia Evangelou told Insider.

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