Bank Failures Impact on Homebuyers and Homeowners

Mortgage application volume experienced growth for two consecutive weeks. Amidst concerns of bank collapses and potential depositor runs on various sizable regional banks, investors sought refuge in the security of government-backed bonds.

As a result, mortgage rates declined to their lowest point in approximately one month.

The federal government also stepped in to ensure consumer deposits preventing a financial contagion. The most Oscar worthy performance this past Sunday (unironically).

How does this affect homebuyers?

The chief economist of the National Association of Realtors says the bank failures means that the Federal Reserve cannot be so aggressive in raising its short-term interest rates to combat inflation. This should result in mortgage rate declines and more housing market activity.

Those concerned about a looming housing crash shouldn’t worry. The Real Estate market is currently thriving and will continue to with strong mortgage lending standards and stricter lending/banking regulations.

In comparison to 2008, there was an oversupply of homes and increasing amount of foreclosures which further exacerbated the oversupply issue. Today we have a shortage of homes which results in an increase in prices and more competition among buyers.

Events like the bank failures this past weekend might cause some short term market volatility and disruptions, but a housing market collapse is unlikely. Lower interest rates should help monthly mortgage affordability, but I don’t expect home prices to fall drastically heading into the summer.

How does this affect homeowners?

Homeowners are in a great position and this bank failure is another example of the importance of homeownership.

One of the costs of renting is being exposed to the domino effects of market volatility, inflation and rent increases. As a homeowner with a fixed rate mortgage, you enjoy the stability of a fixed housing costs and the dignity and peace of mind that comes with it. This makes it easier to budget while building equity simultaneously. Can’t forget the tax benefits like mortgage interest deductions, home office deductions and more.

It’s also important to notice where people run to in moments of crisis. We saw what happened to the housing market after covid and we’ll see how this contained bank failure plays out. One thing is for certain, real estate is one of the most stable asset classes optimized for low-risk and high returns over time.