Allison Larson | What The Recent Bank Closures Mean For You
Allison Larson
Branch Manager, Novus Home Mortgage
Allison’s social character is what drives her to build such a strong foundation with her clients from day one. She believes fostering current relationships, while continuously extending a hand to new affiliations is what keeps her professional life successful and exciting. By creating an environment where people feel comfortable asking questions and expressing their housing goals, she’s able to cater her methods to each unique individual.
Mortgage Expert Allison Larson on what the recent bank closures mean for you
You’ve probably heard about the recent bank closures- starting with Silicon Valley Bank, then Signature, and just today Credit Suisse’s (largest bank in Switzerland) stock is tanking. This is causing a chain reaction in the US.
Why is this happening? In the case of SVB – they were flooded with deposits that came from local startups- investors giving millions to startups and depositing them at SVB. Silicon Valley is a wealthy area though and SVB’s clientele wasn’t taking out many loans. As such, SVB had a ton of cash to spend. Since SVB couldn’t lend the money out (low demand for loans) they invested in treasury bonds. They were betting that the fed would hike their interest rates slower than they actually did, and that people would continue to take out mortgages to buy homes. However, as we saw over the last year, the Fed increased rates quickly. As that happened, the demand for bonds went down. SVB then sold all of their bonds at a $2B loss, which created fear, uncertainty and doubt. As a result, their stock tanked; the management started selling all their personal shares.
Irresponsible money management by these small banks should be a big red flag for US consumers. Why are they allowed to operate this way and then get bailed out by the federal government? There are a lot of questions still to be answered, but for now we will watch to see how far and wide this ripple effect goes.
Currently, the market has flipped course, selling riskier assets like stocks and buying up fixed-income assets like bonds. As such, the value of these bonds are going up, causing mortgage rates to trickle down. We are predicting that rates will continue to come down quickly if more banks fail.
What does this mean for your clients? It means they have choices! Mortgage rates are sitting in the mid-6% now. If clients wait for them to go down more, the demand for homes will go up, causing home prices to go up and inventory to shrink. Even if clients lock a lower rate 3 months from now, they might end up paying $50K more for the house they want because of demand and affordability. The other option: clients could buy now and refinance later when rates come down further. They probably will get the home at a decent price and have more to choose from.
Bottom line is inflation is still coming down. The fed is committed to getting it down to 2% and it’s sitting at 6% now. Mortgage rates will come down, and when that happens, clients can always refinance.