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Top 5 ways the Banking Crisis will impact Housing Market

Updated: Mar 25, 2023

The recent banking crisis has been the talk of the town, and for good reason. It's not every day that you hear about banks collapsing like a house of cards. Silicon Valley Bank, Signature Bank, and First Republic Bank are among the casualties, leaving many wondering how this will impact the Housing Market in 2023.

Anthony O'Connor, Founder and Owner AOPTA The Property Tax Experts

Now, I'm not a financial advisor, but I do know a thing or two about the housing market. Here are some reasons why this crisis could have a significant impact on home prices and inventory:

  1. Reduced Consumer Sentiment: Look, I get it. If you hear about a bank collapsing, it's not exactly going to fill you with confidence, is it? Even with a government bailout of SVB depositors, many Americans are likely feeling rattled by the second-biggest bank failure in US history - and more are coming. As a result, homebuyer sentiment is at an all-time low, and people may be hesitant to take out a mortgage at near all-time high prices.

  2. Tech-Driven Housing Markets: If you thought owning a house in a city with a lot of remote tech workers was the next big thing, think again. Tech-driven housing markets like Austin, San Francisco, and Seattle, which were already experiencing price declines, are likely to be hit hard by the banking crisis. These markets were connected to Silicon Valley Bank and catered to tech startups, which may be forced to shut down. So, if you were thinking of buying a house in the Bay Area, you might want to reconsider.

  3. Falling Mortgage Rates: The silver lining to this crisis could be falling mortgage rates. According to Mortgage News Daily, the 30-Year Fixed dropped from 7.1% last week to 6.5% today. That's a pretty significant drop, and it could stimulate the housing market. Of course, it would need to drop even further to counteract the looming recession, but we'll take what we can get.

  4. Deflationary Recession or Depression: I don't want to be the bearer of bad news, but the banking crisis increases the risk of a deflationary recession or depression. Bank runs and deflationary behaviors strip the financial system of liquidity, making it harder to make and refinance loans. The money supply is already declining, which is the first annual contraction in money that has occurred in America in nearly 100 years. Yikes.

  5. Fed's Response: What will the Federal Reserve do in response to the crisis? That's the million-dollar question. The Fed is trying to fight inflation by hiking interest rates and reducing the money supply, but they also need to prevent a banking system collapse. It's a delicate balancing act, and the direction of their balance sheet will provide insight into whether we will continue down the current path of tightening or experience a money printing bonanza that stimulates the housing market. It's like walking a tightrope, but with money.

In conclusion, the banking crisis is no joke, and its impact on the Housing Market is cause for concern. Reduced homebuyer demand, falling mortgage rates, and the risk of a deflationary recession or depression all add to the uncertainty.


But hey, at least we can still crack jokes about it, right? "Why did the banker break up with his girlfriend? He lost interest." Okay, I'll see myself out.


-Anthony

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