Silicon Valley Bank is big news, so I am addressing this head-on with my all my clients.  These are my own thoughts. I am copying Melissa in case she wants to share her perspective as a lender. Some of this will only be known in the coming months.  I would also love to hear your thoughts.
1. Sellers will need reassurance regarding where funds are held even for “all cash” buyers.  Biden’s announcement that the Fed will ensure beyond the $250,000 limit will go a long way to reassuring that money is not going to disappear with a bank collapse.  Still, we may want to give more information where possible to demonstrate proof of funds.
2. Projected rate hikes will likely pause. “The effect of the crisis in the banking sector has been to lower investor expectations for the amount the Federal Reserve will be able to keep raising interest rates because those rate hikes are at the root of the pain among regional banks.” Rates may even come down now as a lever to encourage mortgage lending and consumer confidence.
3. Lending may tighten. Banks will likely feel pressure to show their investors and boards that they are making sound decisions. We may see tightened lending in the coming months. Buyers will need to be well qualified, loan-to-debt ratios will be conservative, and buyers will need good paper trails especially if self-employed.
4. Some buyers may be back on the fence. Buyers watching the effect on the stock markets and concerned about the strength of financial institutions may feel cautious and decide to sit out. This might not happen if interest rates fall and bring buyers back to snap up good rates. Last week’s mortgage rates were up and job reports were positive (outside of Silicon Valley). This may make it a great opportunity for buyers who stay at it: Low competition and low/stable interest rates rarely coexist.
5. Is the housing bubble about to burst?  Anytime a large bank collapses, there is always a collective pause and sense of concern. We have been telling clients that we didn’t think the bottom would fall out of our market, even if banks failed again because sellers now have much more skin in the game. It is less likely that banks will start dumping their mortgages. Mortgages will still have value because sellers have more equity in their homes.  In addition, banks are not operating on as tight of margins as far as lending is concerned because of regulations put in place. My guess is with a continued undersupply of housing and likely lower interest rates, there will not be a collapse in our real estate market.
Those are my best thoughts at this time.  I hope it helps put this into perspective. The quote in #2 is from: https://www.nytimes.com/live/2023/03/13/business/silicon-valley-bank
By: Tracy Sichterman