The Collapse of Silicon Valley Bank And Signature Bank May Lower Mortgage Rates, Helping The housing Market

According to experts, the failure of Silicon Valley Bank will probably contribute to future decreases in mortgage rates.

Investors are alarmed by the failure of SVB SIVB and Signature Bank SBNY, -22.87{fb1e1880c459e557ac3ce17ffa2de9d6b992aa91487d45f235782beb8d8c21f0}. But, Taylor Marr, deputy chief economist at Redfin, told MarketWatch that the biggest result for the housing market following the federal government’s intervention may be reduced mortgage rates, which will help American homebuyers.

Depositors will be able to obtain all of their money back thanks to measures outlined by the U.S. Treasury, Federal Reserve, and Federal Deposit Insurance Corp.

“Today we are taking significant actions to defend the U.S. economy by boosting public confidence in our financial system,” they said in a joint statement released Sunday. This action will make sure that the U.S. banking sector continues to play its crucial functions in safeguarding deposits and granting credit to individuals and companies in a way that supports robust and long-term economic growth.

According to Marr, the collapse of the two banks is worrying many investors and observers, much like the uncertainty felt surrounding the commencement of the Russia-Ukraine war and the U.S.-China trade war.

Mortgage rates closely follow the yield on the 10-year Treasury. According to Mortgage News Daily, the 30-year fixed-rate mortgage was averaging 7{fb1e1880c459e557ac3ce17ffa2de9d6b992aa91487d45f235782beb8d8c21f0} on March 9. The 30-year rate decreased to 6.57{fb1e1880c459e557ac3ce17ffa2de9d6b992aa91487d45f235782beb8d8c21f0} on March 13.

Although the effects of the U.S.-China trade war “may seem to have very little to do with housing, mortgage rates decreased and pushed buyers right back into the market in the spring of 2019,” Marr noted.

He added, “There might be a parallel to where we are right now. When it comes to news on the world economy, we notice this repeatedly. Bond yields have significantly fallen as a result of the high level of uncertainty, which has significant effects on mortgage rates.

If they look around, the typical home buyer might really get good deals on their mortgages, according to Marr.

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Two big banks collapsed in mid-March

The SVB bank disaster ranks as the second-largest bank failure in American history. The closure generated worry among the financial industry about whether the weakness might spread, as it did when Lehman Brothers failed in 2008.

U.S. regulators intervened, took control of the bank, and took immediate action to reduce the harm.

The same thing happened to Signature Bank. “We are also announcing a similar systemic risk exemption for Signature Bank, New York, New York, which was closed today by its state chartering authority,” the joint statement from the Treasury, Federal Reserve, and FDIC said. This institution will make all depositors whole. No damages will be paid by the taxpayer, as was the case with Silicon Valley Bank’s bankruptcy.

“A significant plus for the home market”

The bank failures won’t cause a housing catastrophe like the one that occurred in 2008, analysts said, despite the fact that Western property markets, including those in San Francisco and the Bay Area, are experiencing difficulties with home pricing. Subprime lending and a foreclosure crisis led to a recession back then.

“I don’t believe that the bank failures will significantly affect the housing market in the western United States. I don’t anticipate there will be an issue in the broader financial system because the failures are isolated, according to Mark Zandi, chief economist at Moody’s Analytics, who also noted that the government’s decision to reimburse all depositors.

He continued, saying that banks will still offer home loans and that “if anything, mortgage rates may decrease given the flight to quality into the bond market and chances that the [U.S. Federal Reserve] may defer its rate increases.”

Banks and other mortgage lenders might not always notice issues with liquidity, according to Sam Hall, a property analyst at Capital Economics.

 Taylor Marr, Redfin

Those in Silicon Valley or in the financial and economic sectors are likely to be paying close attention, while other groups of people are likely to be unaware of what is happening, according to Marr.

“If you fall into the first category, then your faith in the stability of the economy would have been slightly dented, and you might be less reluctant to go forward and make a significant decision that may depend on your income. It could be a wake-up call for some individuals,” he added.

Marr continued, “But generally speaking, I think most people will go about believing that this is sort of like an isolated issue and that it doesn’t touch them too much. “And perhaps they benefit slightly from mortgage rates.”

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