How the collapse of SVB will affect the real estate market

Silicon Valley Bank Collapsed and Seized by the FDIC

The second largest bank failure in US history occurred last Friday, March 10. Silicon Valley Bank, or SVB, was the go-to bank for many tech startups, and was the largest bank in Silicon Valley in terms of deposits. So while bank failures happen often, a collapse of this size has created ripples across the economy.

In a nutshell, this bank-run was caused by changing market conditions, poor leadership/management, and Twitter!

Last Wednesday, SVB announced that they sold $21 billion in securities in order to raise cash quickly. However, due to interest rates and a changing market, those securities had lost value, and they ended up losing $1.8 billion on the sale.

This announcement led to depositors running to the bank to withdraw or move their money.

By Friday, some big-name tech investors and venture capitalists used twitter to warn startups to get their money out and re-think where they put their cash. This caused an absolute panic. $42 billion was withdrawn in a single day, resulting in a negative $1 billion cash balance. House Financial Services Chair Patrick McHenry called this incident the “the first Twitter-fueled bank run.

The FDIC, or Federal Deposit Insurance Corporation, seized SVB on Friday in order to protect its depositors.

Since then, the SVB stock has gone from about $300 to $30.

How will this affect the real estate market?

Rates were steadily increasing for the last 2 weeks, and we saw a high of about 7.05% just last week. However, right after the news broke about SVB, rates plunged very quickly down to about 6.5%. This drop in rates has sparked talk about the fed holding off on its next rate hike, and many experts believe we could see a larger reduction in rates this spring.

This is what chief economist of NAR had to say:

“The Silicon Valley Bank failure, along with a few other banks, means that the Federal Reserve cannot be so aggressive in raising its short-term interest rates…Therefore, mortgage rates will decline.”

Typically, when there is a panic or crisis in the financial market, investors quickly move their money into safer investments, such as US Treasury notes and bonds. Mortgage rates tend to follow the movement of Treasury yields, which are falling.

Another impact, both in the short and long term,of this bank collapse is that people will start to re-think where they keep their money, and many will turn to real estate. If you can’t trust the banks with your cash, or even the stock market, you can trust real estate!

Real estate is one of the safest investments you can make. The investment is secured by the asset itself. Real estate doesn’t lose value due to inflation, it actually does the opposite.

Another reason that real estate is a safe investment is that it will always appreciate in value naturally with the market, but you also have the ability to force its appreciation by putting money into the asset (new floors, new windows, new bathroom, etc).

Real estate is one of the best performing asset classes, and if you do it right, or think long-term, you could be retiring sooner than you thought!

Moral of the story, put money into real estate, not the bank!

If you're ready to get started on your real estate investing journey, feel free to reach out!

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Olivia.cook@kw.com