Banks down, housing up? How the bank crisis impacts real estate

Published Date: March 20, 2023

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I’m Austin — CEO and co-founder of Pacaso. In my role, I’m constantly asked about what I’m seeing in the housing market, and lately, it’s about the potential effects on the housing market following the Silicon Valley Bank crash. While it’s too early to know the long-term impact, the turmoil within the banking industry has triggered a set of noteworthy events in the housing market. The crash of Silicon Valley Bank has left many unanswered questions for the greater macro-economic environment, but one thing remains clear: Few other investments offer the same stability, reliability and fulfillment as real estate. During times of economic uncertainty, savvy buyers can turn to real estate to park their money. There’s value in parking money into something tangible and sentimental like a second home — a purchase that has historically weathered hard times better than the stock market.Here are some of the latest developments you need to know about in the wake of the banking turmoil:

Mortgage rates dip ahead of the spring real estate market.

The average rate for the popular 30-year fixed mortgage dropped to 6.18% on Monday, according to Zillow — down from the growing 7% rate prior to the collapse of Silicon Valley Bank. Lower rates are signs consistent with a “normal” spring housing market. 

Average home prices drop in the short-term, but vary across markets.

As mortgage rates dropped, the average U.S. home price also decreased 1.8% year-over-year during the four weeks ending March 12, according to Redfin. However, this trend doesn’t accurately capture fluctuating home prices across different markets — at this time, some markets are flat, others down and some even up. However, one thing is sure to drive future home prices in the future: availability of supply, which is now generating high prices due to low inventory.  

Demand spikes as home buyers rush back to the market.

Redfin reported that U.S. mortgage-purchase applications increased 6.5% last week. This shows that home buyers are returning to the market due to mortgage rate decline in the wake of the SVB fallout. Whether home buyer demand returns for the long-term will depend largely on how the Fed reacts to the current banking troubles.

"Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds. This decline pushed mortgage rates for all loan types lower, with the 30-year fixed rate decreasing to 6.71 percent. Home-purchase applications increased for the second straight week but remained almost 40 percent below last year’s pace. While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions."

— Joel Kan, MBA Vice President and Deputy Chief Economist.

Urban markets to see home buying slowdown.

Zillow reported an expected widespread downturn in housing markets popular to the tech community, like the San Francisco Bay Area and Seattle. Tech employment struggles combined with faltering stock prices mean fewer buyers can afford the elevated prices synonymous with the post-pandemic housing market. Redfin agents are reporting that some Bay Area buyers are pausing their search due to jitters around layoffs and banking troubles. 

Homebuilders stay focused on creating inventory despite rising costs.

The National Association of Homebuilders (NAHB) remains cautiously optimistic as the nation experiences a third consecutive monthly increase in builder sentiment. One of the biggest concerns with the Silicon Valley Bank's collapse is its impact on the construction industry. Many developers relied on banks to finance their construction projects. With the closure of these banks, many developers may find themselves short of funds for their ongoing and future projects, but with an increasingly low supply of affordable housing, homebuilders must continue to push forward with developments.

"Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory. But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook."

— Alicia Huey, NAHB ChairmanWhile the long-term effects of the current banking turmoil are still unknown, it is clear that the real estate industry is facing a challenging environment. However, with careful planning and consideration, the industry still has potential for growth and innovation.Pacaso has experienced increased demand in our luxury second homes, with deposits increasing 90% in the first two months of 2023 compared to the last two months of 2022. We’re seeing homebuyers coming back now that they have adjusted to the newly higher interest rates of 2023. We'll continue to check in with updates, and encourage you to contact us with any questions about a market of interest.

Austin Allison

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