Silicon Valley Bank Collapse Could Impact Housing Market in Two Ways: Zillow

Silicon Valley Bank customers wait in line at SVB's headquarters in Santa Clara, Calif., on March 13, 2023. Noah Berger/AFP via Getty Images

The recent collapse of Silicon Valley Bank (SVB) could impact the housing market in two separate ways, according to real-estate marketplace company Zillow.

In an article published on March 14, Zillow chief economist Skylar Olsen noted that mortgage rates could fall if the Federal Reserve pulls back from its aggressive interest-rate hikes—which market experts have said looked likely to increase again—in the wake of the latest crisis.

“The heightened economic risk is likely to bring a short-term boost to the housing market by way of lower mortgage rates,” Olsen wrote. “Initial panic has eased, but market watchers worry that SVB’s missteps are more widespread, and investors are likely to pursue safer assets. The Fed might now rethink strong rate increases that appeared imminent just weeks ago.”

While the central bank does not set mortgage rates, its interest rates impact them indirectly.

Olsen noted that homebuyers have been “very responsive” to mortgage rates in recent months after they rose steeply throughout the majority of 2022. However, when rates climbed up to 7.05 percent last week, it “stifled momentum that had been building” as rates gradually fell down at the start of the year.

Following the recent shuttering of three major banks—Silvergate, Silicon Valley Bank (SVB), and Signature Bank—the average rate on the popular 30-year fixed mortgage fell to 6.57 percent on Monday, according to Mortgage News Daily, and is currently at 6.55 percent.

Widespread Tech Downturn, Possible Recession

“Today, falling mortgage rates could thaw what was shaping up to be a fairly frozen spring home-shopping season,” Olsen wrote, pointing to lower rates which could attract buyers on an increasingly slimmer budget amid soaring inflation.

However, Olsen noted that if SVB’s issues are indicative of a broader issue within the U.S. economy, such as a possible long-lasting recession, then that raises the chances of unemployment and thus a decline in income for some Americans, which could in turn impact the gains made in terms of mortgage rates, and thus the housing market as a whole.

In addition, the new fears of a widespread tech downturn could seep into tech-dominated housing markets like the San Francisco Bay Area and Seattle—areas where unemployment rates have soared at a higher rate than the rest of the state, according to data from the Employment Development Department.

Data published on March 10 showed that Santa Clara County’s unemployment rate rose to 3 percent in January, up from a preliminary 2 percent rate a month prior.

Elsewhere, the unemployment rate rose to 3.6 percent month over month in Alameda County from 2.7 percent, 3.9 percent in Contra Costa County, up from 2.9 percent, and 4.8 percent in Solano County, up from 3.8 percent in December.

Buyers Need to Think Long Term

The California counties of Marin, Napa, and Sonoma saw rates rise above 3 percent, while San Mateo maintained the lowest unemployment rate in the state at 2.6 percent.

“With fewer homebuyers in these markets able to afford the elevated prices that have been supported over the years by high incomes and stock growth, it’s likely these markets would chill and prices would come down,” Olsen wrote.

While the current drop in mortgage rates could boost affordability in those tech-dominated housing markets and higher-priced areas, Olsen warned that buyers should still remain cautious about the future and any potential economic volatility, planning instead for the long term.

“Buyers today should be looking to put down roots and find a home they’ll want to keep for at least the next several years in case it takes a while to build equity,” Olsen wrote.

Amid the fallout from the latest crisis, President Joe Biden has attempted to ease fears, ensuring Americans that their hard-earned cash and the banking system overall are safe.

Federal regulators are now investigating what caused the financial mess, and the administration has vowed to bolster oversight and regulation of larger banks to ensure a similar situation does not occur again.