I’ve been asked by many real estate agents and clients about how this week’s banking uncertainty might impact the real estate and mortgage markets.
Two banks have collapsed since last Friday and the federal government jumped in to guarantee depositors at those institutions. However, there’s still a lot of uncertainty about what this means to the markets.
Fortunately, depositors at Silicon Valley Bank — which failed Friday after a bank run — and New York-based Signature Bank — which collapsed Sunday — will see their money guaranteed by the federal government.
The U.S. Treasury, Federal Reserve, and Federal Deposit Insurance Corp. (FDIC) announced measures to guarantee that depositors would be able to receive all of their money back from those failed institutions.
For a great read on the details, I’d invite you to read this piece from Statechery…
This situation looks nothing like 2008 when subprime lending and easy credit spurred a foreclosure crisis.
As a matter of fact, many experts see mortgage interest rates coming down because of this incident.
“I don’t think the bank failures will have a material impact on the housing market in the western U.S. The failures are idiosyncratic, and given the government’s decision to pay all depositors, I don’t expect there to be a problem in the broader financial system,” Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch.
He added, and “if anything mortgage rates may decline given the flight to quality into the bond market and prospects that the [U.S. Federal Reserve] may delay its rate increases.”
Mortgage lenders — which includes many banks — may not necessarily see problems with liquidity, said Sam Hall, property economist at Capital Economics.
“The direct impact on the housing market is likely to be small. Moreover, SVB’s holdings of residential mortgage-backed securities (MBS) account for a very small share of the overall market, so the forced selling of those assets is unlikely to put any downward pressure on MBS prices,” he added.
Al Otero, portfolio manager at Armada ETF Advisors, also said that the two banking failures may have forced the Federal Reserve to not raise rates, which could help the housing market.
There’s a rally in rates across the yield curve, Otero said, “and an expectation that the Fed will now ‘pause’ raising the funds rate at its March 21-22 policy session.”
“We could see a material reduction in mortgage rates going into the spring sales season,” he added, “which would be a substantial positive for the housing market.”
The Federal Reserve
The bank failures may actually soften the Fed’s stance on interest rates.
“The hawkish tenor of Fed Chair Jerome Powell, in his Senate testimony last week and with the February rate hike, indicated a 50-basis-point increase was likely for the March rate decision” say’s NerdWallet’s Anna Helhoski.
You can read Anna’s full article here…
But the Silicon Valley Bank and Signature failures have clouded that outlook.
In a widely reported analysis of the failures, Goldman Sachs said it no longer expects the Fed to deliver any rate hike at the March 22 meeting, adding they had “considerable uncertainty about the path beyond March.”
Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., was widely reported saying he expects a 25-basis-point hike at next week’s meeting.
The heightened economic risk brought on by the failed banks and the government’s response is likely to bring a short-term boost to the housing market by way of lower mortgage rates.
Secondly, the Federal Reserve might now re-think forceful rate increases that appeared imminent just weeks ago. That should trigger lower mortgage rates, as well.
For buyers shopping now, a drop in interest rates would be a welcome boost to affordability – so reach out to me for more details, as it would be my pleasure to help would be borrowers navigate this environment.