A Quick look at Silicon Valley Bank and the Real Estate Market

As of Friday, March 10th, federal regulators assumed control of Silicon Valley Bank, making it the largest failure since the 2008 financial crisis. According to various news outlets, several factors contributed to the company's collapse, including heavy investment in the technology sector, a failure to account for rising interest rates, declining venture capital, a large number of uninsured depositors, and a lack of regulatory oversight.

 Here is a recap of events: 

  • Founded in 1983, SVB worked with many venture capital-backed startups and was a key driver of the tech industry's growth.
  • As startups raised money, in recent years, some of these loans were both funded by and deposited into SVB.
  • With considerable cash on hand, SVB utilized deposits to buy long-dated asset-backed securities purchased at low interest rates.
  • Due to rising interest rates, SVB's long-term fixed-rate securities decreased in value and posed liquidity issues until their maturity.
  • The decline in venture capital funding led startups to draw down their deposits to finance their daily operations - money that was tied up in long-term securities.
  • SVB announced that it needed to raise $2.25 billion to shore up its operations. Stock prices plunged, and customers swiftly withdrew funds in an old-fashioned bank run.
  • SVB was shut down by regulators on Friday, March 10.

Now, what does this mean for the residential real estate market?

Rates dropped in response to the news. The financial markets began to sell stocks and buy fixed-income assets like bonds, putting downward pressure on interest rates.

According to JVM Lending, “rates will likely continue to fall for a variety of reasons, including: bond investors understand how much of a risk this is to economic growth overall; this is deflationary in the short-term; and it makes it harder for the Fed to raise rates. Rates will not fall in a straight line though, but this will just exacerbate the overall downward trend for this year.”

As of Tuesday, March 14th, conventional, conforming 30-year fixed rates are back in line with Friday's levels. Despite a lower level than last Thursday, there is still a risk of additional increases as the panic subsides.

Mortgage News Daily had this to say:

With the Fed in the midst of the typical 11-day communications blackout ahead of the next meeting, speculation has been running fairly wild as to how recent events will affect the rate outlook. To be fair, most of the "running wild" is a product of the news itself. The Fed's blackout period only adds a modest amount of uncertainty.

If you ask financial markets, everyone is fairly certain the Fed will still hike 25bps next week. After that, it's anyone's guess as Fed Funds Futures suggest rate cuts on the horizon. The overnight news brings December's Fed rate outlook to even lower levels than those seen on Monday.

However, interest rates are not the only factor affecting the real estate market. Lower mortgage rates could alleviate financial stress for homebuyers struggling with affordability. They may also be the push some homeowners need to sell.

But the bank’s collapse could also signal a prolonged downturn in the tech industry. Combine that with recent tech layoffs (Meta just announced they would cut another 10,000 jobs). Fewer jobs, overall uncertainty, and low confidence take buyers out of the market. More inventory and fewer buyers could mean downward pressure on prices. Especially in tech-heavy markets.


In the short term, lower rates may help homebuyers who have been priced out. How deep economic impacts are and how people perceive economic risk will determine the overall impact on the real estate market.


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