BANK FAILURES: The start of 2023 was rough for the banking industry. It started with Silvergate Bank and then Silicon Valley Bank and then Signature bank which all failed within the month of March. Some other banks have received rescue funds like First Republic and Credit Suisse. So what happens to real estate in these uncertain times? Well time will tell but historically the banks will hunker down and get tight with the lending and make it even tougher to get a loan. This is because they have to preserve capital just in case the next shoe drops.
The CRE (Commercial Real Estate) will be hit the hardest and not much lending will go on since much of the CRE debt is in the smaller banks (I heard up to 80% which is $2.3 trillion…yes trillion with a “T”) and they are going to be cautious going forward until the crisis is behind us.
The bank failures, means that the Federal Reserve cannot be so aggressive in raising its short-term interest rates and therefore mortgage rates will decline as we have seen in the past few days. However, still relatively high (around 6.5% as the writing of this newsletter). However, it is all the uncertainty that results in people doing nothing and just going into “wait and see” mode.
In summary, I think that the inventory and sales (as mentioned in last newsletter) will remain low since people are staying in their house longer and not moving unless they have to and the lenders will be super particular on who they lend to since capital preservation is now the name of the game. These factors will keep the housing market on ice 🥶 .
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