What’s up everyone
As we’ve seen in recent weeks, some big banks have imploded.
First Silicon Valley Bank & Signature Bank of New York Collapse which was then quickly followed by very troubling news about Credit Suisse and First Republic.
If you worked in real estate back in 2008 like I did, you also probably dropped your coffee and felt cold all over. There are only a few times in my life I felt that way, and this was one of them.
I honestly will never forget the day Lehman brother’s closed. It felt like the housing market took an immediate nose dive into the abyss, followed by foreclosures and short sales and would take years before it would start to recover.
So, are we back in 2008? Is this the beginning of the Big CRASH people have been warning about?
How exactly will these bank failures impact the future of the housing market?
Today we’ll take a deep dive into what the industry experts are saying.
We’ll look at articles from Zillow, the National Association of Realtors and Redfin to get their different perspectives.
And as usual, I’ll chime in with my opinion as well.
Lets dive right in
Lawrence Yun, the chief economist of the National Association of REALTORS®, said “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.”
The average 30-year fixed mortgage rate fell to 6.6% for the week ending March 16, according to Freddie Mac data.
But is it as simple as that?
Zillow chief economist, Skylar Olsen, goes a little deeper with two predictions for how the shutdown of Silicon Valley Bank could impact the housing market in 2023.
Her first prediction coincides with Yun’s in that she believes the heightened economic risk is likely to bring a short-term boost to the housing market by way of lower mortgage rates.
She explains that the Federal Reserve may rethink raising interest rates due to the uncertainty created by the failing banks.
In addition, investors tend to put their 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.
If rates do continue to go down, it stands to reason the housing market will heat up.
“Home buyers have been very responsive to mortgage rates in recent months; when rates climbed back above 7% earlier this month, it stifled momentum that had been building as rates originally drifted down to start the year. Today, falling mortgage rates could thaw what was shaping up to be a fairly frozen spring home shopping season. “
We definitely saw a bump in buyer activity at the beginning of the year and again this past week when rates dropped.
Mortgage purchase applications jumped 7% for the week ending March 10 compared to the previous week, according to data from the Mortgage Bankers Association — though they were still down 38% year-over-year.
Lower rates would definitely help those buyers who are stretched thin when it comes to affordability which is something we really need right now.
Home prices have not come down enough to support local incomes in many housing markets in our country. The affordably crisis is real, Esp for first time homebuyers.
But there is more to the story.
The collapse of SVB and the other banks could be the warning shot that a recession is imminent.
Olsen writes “If SVB’s troubles are indicative of wider issues, a coming recession could be deeper and longer-lasting than expected. That raises the odds that income or job loss could start affecting housing markets where the economic stress is concentrated. “
Which leads us to her next prediction:
2. Tech hubs should brace for more pain in the wake of Silicon Valley Bank’s collapse
Olsen believes tech-dominated housing markets like San Francisco, Boise, and Seattle will feel this the hardest.
Businesses that were reliant on funding from SVB and others may lack capital to continue its business or have to cut back.
This could result in job losses, most prominent among tech companies.
Dana Anderson writes in the latest Redfin Housing market update- “Housing markets in the Bay Area and New York, home to the three regional banks that have tumbled over the last week–along with many tech workers who have either been laid off or are worried about being laid off–are already feeling the pain. “
And Olsen writes- “With fewer home buyers in these markets able to afford the elevated prices that have been supported over the years by high incomes and stock growth, it’s likely these markets would chill and prices would come down.”
These markets have already been seeing heavy corrections since the market changed last year.
If people start losing their jobs on top of the current affordability crisis, this correction will get a lot worse.
“Some buyers are canceling their contracts or bowing out of their home search because they work in tech and they’re worried about losing their jobs,” Bay Area Redfin manager Shelley Rocha said in a statement. “The surge in tech layoffs was already causing jitters, and now the bank failures are adding to buyers’ nerves.”
According to Redfin’s data, San Jose’s home prices fell 17% year over year in February.
This marks the biggest price decline in the metro since Redfin began tracking that data in 2015.
Prices were down 11 percent in San Francisco and Oakland, with Sacramento dropping nearly 9 percent, year-over-year.
Austin was the only metro outside the greater Bay Area to break into the top five, with a 13 percent decline.
The Bay Area also had some of the biggest declines in new home listings, as the drop in prices led homeowners to take their homes off the market or not bring them on at all.
New listings fell by nearly 50 percent in Sacramento, year-over-year, and listings dropped more than 40 percent in San Francisco, Oakland and San Jose.
It is clear that the heavy tech-hub markets are heading for some very challenging months ahead which will most likely permeate throughout the rest of the country.
For buyers in the market now, a reduction in interest rates will be a welcome boost to affordability, but they should still prepare for rate volatility.
And for sellers, lower rates may give them the push they need to put their homes on the market which will increase our inventory.
But this is short term thinking. I don’t believe the fallout from the bank failures is over.
Back in 2008, it felt like I lost my job overnight. It was that drastic. I had 2 little kids and selling real estate was my sole source of income.
My own house lost 20% value between 2007-2009.
It was terrifying.
But we got through it. It was brutal and challenging to say the least, but perseverance and a bit of survivor mode prevailed.
And although I did get shivers up my spine the day Silicon Valley Bank collapsed, in the weeks since then, I don’t think this will be the same.
Zillow’s Olsen advises, “Buyers today should be looking to put down roots and find a home they’ll want to keep for at least the next several years in case it takes awhile to build equity.”
I’ll add to that, if you are buying today, plan on staying at least 5-10 years, or more like 7-10.
If you have a long term mindset, you can take advantage of these lower rates and buy a house now with less competition.
I’m happy I kept my house back when things were rough. It’s where my family has created memories and if I choose to sell in the future, the investment will definitely pay off.
Let’s end this video with some Redfin data on the housing market covering the 4 week period ending March 12.
The median home sale price was $355,668, down 1.8% from a year earlier. That’s the biggest decline in at least a decade, according to Redfin’s monthly dataset, which goes back through 2012.
They go on to clarify that the Median sale prices fell in 24 of the 50 most populous U.S. metros with the biggest drops in the California cities we spoke about.
Pending home sales were down 17.1% year over year.
This is not surprising as there are less transactions across the board. Buyers still can’t afford most homes and sellers don’t want to trade in their Low interest rates to go buy something new with a higher one.
New listings of homes for sale fell 22.1% year over year, the biggest decline in nearly three months.
New listings declined in all but one of the 50 of the most populous U.S. metros, with the biggest declines in Milwaukee (-65% YoY), Sacramento (-48.1%), Oakland (-45.9%), San Francisco (-42.6%) and San Jose (-41.8%). They increased 2.6% in Nashville.
So interesting that New listings have increased in Nashville. I just did a video on Thursday about the cheapest states to live in and Nashville made the top 10.
Active listings (the number of homes listed for sale at any point during the period) were up 16.5% from a year earlier, the smallest increase in more than three months.
All this says is that homes are taking longer to sell, but since the number is less than last month, it does say that buyer activity is increasing.
Homes that sold were on the market for a median of 46 days. That’s up from 27 days a year earlier and the record low of 18 days set in May.
On average, 4.9% of homes for sale each week had a price drop, up from 2% a year earlier.
Months of supply—a measure of the balance between supply and demand, calculated by the number of months it would take for the current inventory to sell at the current sales pace—was 3 months, down from 4 months a month earlier and up from 1.9 months a year earlier.
So inventory is down from a month ago and buyer activity is up. Makes sense since we’re in the hot spring market now.
These are interesting times and the next few months will be telling.
The best way we can all see what is happening in the housing market across our country is to share what’s happening in real time so please comment below and tell us what you see where you live.
And If you want to talk more about the housing market or if you are planning on moving to MD, DC or NOVA and you would like our help, just send us an email, we’ll set up a zoom and get you started.
If you want to see some other perspectives on the housing market, check out these videos. They’re all from different industry insiders.