Bank Failures Spark Panic: The Impact on The Housing Market

Liza DiMarco May 29, 2023

Given the recent collapse of a few mid-tier US banks and the plunge in shares of Credit Suisse, many are left wondering what the impact of these failures will be on the housing market. In terms of the impact on the real estate industry, the failure of these banks is predicted to have a limited effect, as the real estate market is not directly tied to the cryptocurrency market. The real estate market is a large and diverse market, with many different types of buyers, sellers, and investors. While the availability of financing can have an impact on certain segments of the market, it is unlikely to cause a widespread collapse.

Here’s a little insight

#1. Don’t panic. Out of 4,236 FDIC-insured commercial banks in the U.S., only three failed: Silicon Valley Bank (SVB), Signature Bank, and Silvergate Bank. Credit Suisse is seeing a plunge in its shares but is “too big to fail and too big to be saved,” says economist Nouriel Roubini. The three collapsed banks were also heavily exposed to the tech (SVB) and crypto (Signature, Silvergate) sectors. Most banks have more balanced portfolios and are not overly dependent on one sector. There is a possibility that more banks will be affected by duration mismatches, creating liquidity issues, but as of now, only three banks have failed, and those are all unique cases.
#2. This is not the GFC (Great Financial Crisis) all over againThere are key differences:
  • The current real estate market is fundamentally different from the market in 2008. Prior to the 2008 crash, there was an oversupply of homes and an increasing number of homeowners who were unable to make their mortgage payments. This led to a large number of foreclosures, which further exacerbated the oversupply issue. Today, the market is characterized by a shortage of homes, which has resulted in increasing prices and competition among buyers. Additionally, mortgage lending standards have become stricter since the financial crisis, which has resulted in fewer risky loans being issued.
  • The financial system has also undergone significant reforms since the 2008 crisis. Regulators have implemented new rules and regulations that have made the banking system more resilient and less prone to collapse. For example, banks are now required to hold more capital as a cushion against potential losses, and the Federal Reserve has established mechanisms to provide liquidity to the market during times of stress.
  • It is unclear if the current situation is a crisis, but regulator involvement is likely to avoid a more systemic or larger consequence. So far, the most significant issues have been centered in a few regional banks. While SVB and Signature Bank are the second and third greatest bank failures in US history, their assets were far less than the assets of the largest banks in the US. Even the largest banks were under strain during the GFC.
  • Today’s economy is much stronger than it was during the GFC when the first wave of bank and non-bank failures began. For example, the U.S. was already well into recession back then and the unemployment rate had already risen from 4.7% to 6.8%. Today, the U.S. is still creating jobs, and unemployment is near an all-time low—at 3.6% as of February 2023. 
  • The current issues facing the select banks under pressure stem from interest rate risk on held-to-maturity assets, which is not linked to performance of their credit or outstanding loan portfolios. In contrast, during the GFC, banks were instead facing a credit crisis through the largest and most important debt market—that of single-family residential mortgages. These are two very different challenges, with very different underlying causes
#3 The Fed may ease up. Mortgage rates had been steadily rising in recent weeks, with the 30-year fixed-rate loan averaging 6.73% last week, according to Freddie Mac. The Fed’s have been making a series of aggressive rate increases. Home buyers have been up against affordability woes, as mortgage rates are nearly double what they were just a year ago. But as of Monday, mortgage rates had fallen about 50 basis points lower than last week. “So, a panic in a sense leads to an automatic stimulus to the economy from lower interest rates”. The housing sector nearly always responds to falling mortgage rates. And if rates do head lower, more home buyers undoubtedly would still enter the housing market in response.
The sky isn’t falling; at this stage, it’s more overcast than anything else. During periods like this, watching to see what real trends emerge is a better strategy than overreacting to headlines.
Overall, while there are always risks and uncertainties in any market, the current real estate market is fundamentally different from the market that existed prior to the 2008 financial crisis, and the financial system has become more resilient and better equipped to weather potential shocks. Therefore, while these events may result in some short-term disruptions or market volatility, they are unlikely to trigger a broader collapse.

How This is Affecting Savannah

Savannah is experiencing unprecedented growth. She is like a teenager growing out of her former awkward self and starting to shine as she steps into her new glorious persona.
With the Port Expansion, numerous new hotels, the Hyundai Super Site (just outside city limits), doubling of the convention center and new housing starts, Savannah is the golden girl of the South. All eyes seem to be cast upon her. This newly discovered area is attracting people from all over the United States who come to visit, invest and live. These people are those with the means to enjoy Savannah and to invest in her. With all of this momentum, Savannah’s Real Estate is booming with little slowdown in sight. The Real Estate Industry in Savannah has not been impacted by the mortgage rates and may not be.

Work With Liza

Navigate the intricacies of real estate negotiations with confidence. Liza's unparalleled negotiation skills have consistently delivered optimal outcomes for her clients. Trust in her ability to secure the best deals, whether you're buying or selling.