Bank Failures and Real Estate
According to Lawrence Yun, the Chief Economist of the National Association of REALTORS®, the recent collapse of Silicon Valley Bank and other banks could result in a decrease in mortgage rates. The failure of these banks has sent shockwaves through an already fragile economy, and the Federal Reserve will now be unable to aggressively raise short-term interest rates. As a result, mortgage rates are expected to decline.
Over the last few months, the Fed has been making a series of aggressive rate increases, which has indirectly influenced mortgage rates, causing them to rise steadily. However, mortgage rates fell by about 50 basis points lower than last week due to a panic in the financial market. Investors often shift money toward safer assets, which tends to be U.S. Treasury notes and bonds. Mortgage rates lately have tended to follow the movement of Treasury yields, which are falling.
The shutdown of Silicon Valley Bank became the second largest bank failure in U.S. history and the largest since the 2008 financial crisis. To help avoid mass panic, the Federal Reserve, Federal Deposit Insurance Corp., and Treasury Department created an emergency program to backstop all deposits using the Fed’s emergency lending authority, granting depositors full access to their funds as of Monday. This step has been viewed as an unusual one, as the federal government has backed up uninsured money.
The bank failures may be a sign of trouble ahead for the tech industry. Some businesses reliant on funding from Silicon Valley Bank and others may lack capital to continue their business or have to cut back. Job losses may result, especially among some California tech companies. Local housing markets may be hampered by those job losses. However, Yun says that broadly across the country, more home buyers will enter the market because of lower mortgage rates.
