The Impact On Real Estate Of The Silicon Valley Bank And Signature Bank Closures

March 16, 2023

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Within the last few days, two banks in America were closed and seized by the Federal Deposit Insurance Corporation (FDIC) when fears that they were facing insolvency due to facing the genuine possibility of not having sufficient money to cover withdrawals. Silicon Valley Bank (SVB) and Signature Bank (S.B.) faced bank runs at a speed never seen before. At SVB, customers withdrew $42 billion in a single day. Modern technology was highlighted as a contributing point to the collapse. The ease of access granted by each bank’s online transaction systems and the fear-mongering and panic spreading like wildfire via social media was highlighted as “the first Twitter-fuelled bank run,” as per House Financial Services Chair Patrick McHenry.

Many in the financial industry feared the weakness would spread similarly to what happened when Lehman Brothers collapsed in 2008. This included many real estate investors worried that their savings could deposit overnight. Fortunately, U.S. regulators stepped in quickly to take the emergency decision to cover all the deposits made to SVB and S.B. to protect depositors, and, equally as crucial, to protect the trust and confidence in small and regional banks.

This quick, proactive action by the Federal regulators had the benefit of isolating and mitigating much of the immediate fallout of the second-largest bank collapse in U.S. history. While there was little direct impact, sentiment and concerns regarding stability in the banking industry remain a concern. This means that while the regulators seem to have successfully curbed the immediate effects of the closure on real estate and other sectors, it could yet have a cooling effect on the real estate market, with investors being afraid to act.

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On the other side of the coin, this collapse may kickstart home sales and mortgage demand (though banks may be more cautious now about approving them). From reaching 7% at the start of this month, the 30 Yr. Fixed Rate Mortgage had fallen to just 6.55% as at 03/15/20223. As per Sam Hall, property economist at Capital Economics, “The direct impact on the real estate 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.”

The collapse of SVB also will likely see the Fed slow or stop its rate hikes to reduce the pressure on banks and other financial institutions. While it remains to be seen if opportunistic investors might take advantage of this chaos to buy while the mortgage rate has dropped so rapidly or if they would wait, expecting further repercussions to the banking sector this month.

With things developing quickly and news breaking almost daily, it can be hard to predict the immediate future. We recommend taking a cautious approach rather than the optimistic one for at least a few more days to see how things start to trend.

That being said, if you are confident that you can turn chaos into opportunity by finding the right real estate investment property deal, you might be looking for financing options. In that case, talk to our team at REI News today! Our experts will be able to pair you with the perfect, reliable lender even in these volatile times.