How the Silicon Valley Bank Failure Could Affect the Housing Market

The shutdown of the Silicon Valley Bank last Friday became the second largest bank failure in U.S. history and the largest since the 2008 financial crisis. Shortly after, two other major lenders in the cryptocurrency space also failed. According to Lawrence Yun, chief economist of the National Association of Realtors, the demise of the three banks means the Federal Reserve may not be so aggressive with its short-term interest rate hikes, and that could lead to an increase in homebuyer activity. 

Still, those bank failures could ultimately lead to job losses within the tech industry, an unfortunate aftershock that could have major implications for some local housing markets, NAR reports.

But as of Monday, mortgage rates had fallen about 50 basis points lower than last week. Yun says that when there is a panic in the financial market, investors often shift money toward safer assets, which tends to be U.S. Treasury notes and bonds. Mortgage rates lately have tended to follow the movement of Treasury yields, which are falling.

“So, a panic in a sense leads to an automatic stimulus to the economy from lower interest rates,” Yun says in public comments on LinkedIn. “The housing sector nearly always responds to falling mortgage rates, especially when there are job additions to the economy.” And if rates do head lower, more home buyers undoubtedly would still enter the housing market in response, he adds.

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