SVB Collapse and its impact on the Housing Market

In March 2023 and after announcing losses of more than one billion dollars, the Silicon Valley giant left the financial industry in stitches. The historically unexpected flop could potentially jeopardize the success of the U.S. real estate industry.

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Impact of SVB collapse on housing market 

Back in March, Skylar Olsen, Chief Economist in Zillow, a U.S.-based company dedicated to the technology real estate market, issued a memo surrounding the challenges the SVB will now have to face after its historical fall. According to the expert, the housing market could now see a reduction in mortgage rates and a decrease in property prices in technology-driven regions such as San Francisco and Seattle. But why?

Lower mortgage rates

After witnessing the fall of the Silicon Valley’s giant, investors could feel prompted to pursue safer investment options. That shift could potentially lead the Federal Reserve to reconsider the high mortgage rates that buyers would have to deal with in the near future. Therefore, the forecasted high rates would be replaced by more accessible options. 

Since the SVB was known for working within the tech industry, by financing startups that demand high investments during early stages, the impact of its collapse can first be seen in the tech world. Therefore, the regions that have a high tech industry presence would be the first to see the shift in rates.

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Home shopping season back to life

If buyers are faced with lower mortgage rates, at least in tech-driven areas, the demand in the housing market may be on the rise. Lower mortgage rates might alleviate the picture for those who have been struggling to follow the demands of the competitive real estate market. 

Olsen suggests a drop in mortgage rates could even bring back to life the spring home shopping season.

During 2022 the U.S. housing market experienced a setback. The real estate industry suffered a consistent decline in home sales for 12 consecutive months, as reported by the National Association of Realtors. The higher mortgage rates are part of the reason behind it.

More sellers in the housing market?

If the housing market were to face an improvement in mortgage rates, homeowners might feel prompted to put their properties on the market, which would replenish the housing supply for buyers of next generations. Thus, the housing market in the United States could witness a notable increase in home sales, which have consistently been on a declining spiral for the last months.

Mixed implications

Much has been said about the effects of SVB’s fall on the tech world. One must remember the fall of SVB is partially related to the financing of tech startups that demand high investment without results in the short-term. The tech industry is therefore facing a direct impact that has resulted in a slowdown in the market. 

Although for Olsen the impact of SVB collapse on the housing market has a potentially positive outcome, many raise concerns on the negative possibilities that still remain over the table. Only time will tell if tech-driven regions will be able to seize the mortgage improvements as the tech industry in such areas is already suffering a slowdown.

As per other regions of the country, the forecast remains overall positive when it comes to the housing market. Although it is key to see the behavior the industry will have in the near future.

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How can the collapse of a bank affect the housing market?

At first hand, the collapse of a bank translates into greater difficulties in obtaining credit, in this case for the purchase of a home. As the financial structure of the country is altered, with the collapse of SVB, obtaining a loan for the purchase of a home becomes far more challenging, which can lead to a decrease in income in the housing market.

In parallel, the collapse of banks may also lead to a notable increase in foreclosures. For bank customers who hold property in collateral with a bank, their property may be at risk. The instability of the financial institution may force it to increase foreclosures, so that they are conducted outside of the normal cycle pattern.

Seen from the big picture, and taking into account that SVB was the 16th largest bank in the country, the collapse of the entity may impact the economy of the entire population. So, if the nation’s overall economy suffers a stagnation, buyers will face more difficulties in acquiring the money needed to purchase a home. If people’s overall purchasing power is affected, the real estate industry may suffer a drop in demand, causing the housing market to collapse.

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