SVB and The Housing Market
I wasn’t going to write about this but… There have been a lot of questions about Silicon Valley Bank (SVB). Mostly, the questions are about SVB and the housing market. Therefore, I feel it’s helpful to address this.
There is a lot of industry analyst betting against the housing market. Unfortunately, they will grab any yarn to knit together a doom-and-gloom click-bait headline. Will the collapse of SVB impact the market? Surprisingly, the answer is not likely what you think.
Three reasons why the SVB situation doesn’t affect mortgages.
First, SVB primarily focuses on providing loans and financial services to technology and innovation companies, rather than individual mortgage borrowers.
Another reason is that the mortgage industry is regulated separately from the banking industry. Again, any issues with SVB would not necessarily impact the mortgage market.
Lastly, mortgage interest rates and lending practices are influenced by a variety of factors beyond the operations of a single bank.
What Influences Mortgage Interest Rates?
Mortgage interest rates can rise and fall due to a variety of factors, these factors are tied to the larger economy and the individual borrower as well.
Some key economic factors that influence mortgage rates include inflation, economic growth, the state of the housing market, and monetary policy decisions made by central banks.
In the case of SVB, investors shaken by the turmoil may have bond traders warming up the 10-year yield.
Keep in mind, investors perceive bonds to be an extremely safe investment because they are backed by the U.S. government. Mortgage rates have an inverse relationship to bond prices. As demand for bonds leads to a higher rate of return, mortgage interest rates tend to decline.
The Federal Reserve had to balance better than expected jobs report along with the surging panic over SVB’s collapse so being less aggressive in raising short-term interest rates, which caused mortgage rates to go down.
Individual Borrowing Factors
Individual borrowers have control over interest rates through factors such as credit score, loan amount, and down payment can also impact the interest rate offered. Undoubtedly, this is where homebuyers can have the most control over their destinies.
What will the SVB collapse impact?
We like to talk about real estate on a national level when it comes to discussing interest rates. However, real estate is also hyper-local. Because of this, places that have a high-tech density may likely see some more significant impact due to tech companies’ relationships with SVB and other similar banks. Some homebuyers may feel compelled to put off a home purchase. Nevertheless, declining mortgage interest rates are likely to motivate others to purchase a home sooner than later.
On the other hand, SVB was a huge player in affordable housing investments. Consequently, developers dependent upon these construction loans can face the uncertainty that will impact these housing projects.
Is Now a Good time to Buy a Home?
The best time to buy a home is when you have the financial means and financial wellness to do so. A homebuyer should have a stable income, a strong credit score, and have saved up enough for a down payment and other associated costs. Want to explore what this looks like for you? Contact us and we will be happy to answer what questions you have.