Thursday, March 23, 2023 / by Kathryn Jones
Silicon Valley Bank Failure, Interest Rates & Why I Bought Another Horse
Russ is here to check in with our community! Keep reading to get his rundown on the Silicon Valley Bank Failure, Interest Rates, and more:
I bought a horse last weekend. Even though I have 4 other ones already. More on that and how it relates to today's topics later.
So, I have begun to REALLY LIMIT my "news intake." Not because I want to be out of touch....but because I want to be out of touch with "agenda driven news." In fact, so much of it is not really news, it's op-ed, crafted to look like broadcast news. People in suits, behind desks, with endless talking points about how "that other side" is out to ruin the country. I think politics ruins EVERYTHING it touches.
That said, there are some news items that ARE important to watch and so I have limited myself to reading the WALL STREET JOURNAL and to a podcast I enjoy called "The World and Everything In it." I recommend both.
I also listen to people smarter than me in their fields of expertise. This blog is about some of what I've gleaned lately and how it relates to advice we are giving.
The elephant in the room in the last week or so is this SVB story. "Why is the government bailing out depositors" and so on. It's being called a "moral hazard" to essentially rescue INVESTORS in the bank if they made poor investments and reap no consequences. SVB was heavy into financing companies that were seeking to win government contracts for renewables the federal government subsidized in the "Inflation Reduction Act."
When the government spends a bazillion dollars, companies are formed to chase that money. That and funding other venture capital interests led to business plans that counted on lower interest rates and then when the cost of money rose sharply, the landscape suddenly looked different. Also, when interest rates were super low, banks have to increase their risk tolerance to make the revenue they want. Well, SVB got over-exposed.
Then there was a tweet that there was a "run" on the banks at SVB and things got emotional QUICKLY. Someone I know and respect told me that "This was the first run on a bank created by social media, and they lost $40 BILLION dollars in about 6 hours."
The fear that created was why the feds decided to guarantee the depositors (not the investors) their money, even if the accounts had more than the FDIC insured $250k. The feds feared this "contagion" would spread to other banks and we could see something highly emotionally charged create a crash. Don't you just love social media for this kind of thing?
Well, that seems to have changed the tune for the Fed who was expected to raise interest rates by 1/2 point this week, but instead opted to go up by 1/4 point instead. From what I gather, they were planning on 50 basis points but backed off due to the current fear, driven by the SVB bank failure and a couple of others. It's a delicate time to keep going full bore with rates. But there was some speculation they wouldn't raise rates at all because of the bank situation and the pressure that put on markets. Well, 1/4 of a point seems to be where they landed to communicate that government will still uphold some level of "discipline" in the world of banking and financial investing...and they still are trying to get inflation stymied.
The interest rate increases last year REALLY impacted the Real Estate market in that a lot of people froze up and went to the sidelines to see what would happen. But... for the latter half of 2022, I kept asking myself "How much of this slowdown is the regular seasonal slowdown we see after summer?" I couldn't convince myself that the grind of late 2022 was entirely due to interest rates.
Sure enough... the market seems to be coming to life with new pending contracts. Spring is here, and we are in the season that is traditionally busiest for us. RIGHT NOW, every demographic is shopping. When I look at the annual cycle of "Units closed per month," every year I see the buyers with kids (who have to follow the school calendar) enter the market in March and exit the market in June. By July, the moms are settling in and prepping for that school year that starts a week or two into August.
So right now is the time to test the waters for a) best price and b) ESPECIALLY if you have a home most suited for a someone with kids that will be on the school calendar....you should be on the market. If the market is there for your price, what better time to list than when literally everyone from empty nesters to first time home buyers to families with kids in school is shopping? We will be fishing in a pond with fewer fish by late June and July.
We are seeing the spring cycle take off. I've had two properties sell in the first week with multiple offers. They were priced well, in good condition, and they both had multiple offers. I've also closed some luxury listings this year. In short, I think people are accepting the new normal as far as mortgage rates, and ready to move out of limbo and get on with life.
For me, "getting on with life" looked like buying a horse last weekend. I paid more than I ever thought I would for a horse. But what I found had a UNIQUE SELLING PROPOSITION:
- Well trained (I roped on him the first time I rode him, and he put me in perfect position)
- Healthy, with good solid feet and excellent conformation
- I knew the history, and I trusted the friend I bought him from.
- He is a Buckskin. I had a Buckskin 30 years ago named "Weeds" and I have missed him ever since. You don't buy a horse for it's color, but when it all aligns...this is icing on the cake.
When I saw the package of what I wanted, I started finding logic to back up the emotional decision. I said "Russ if you get the years out of this horse that you have gotten out of Duke, you'll be 67 by the time he is Duke's age...and you're still roping off of Duke!" So I was like "it's more than I wanted to spend, but in that light...let's do this.
People use similar thought processes to buy a house with features they want and fall in love with. The ice is melting out there and decisions are being made again.
Also, we have been told that prices should be upheld here because over 80% of US mortgages are locked in below 4% interest...so people are not going to sell just to move into something they like unless the house (the horse, in my case) has a compelling reason to buy it. A unique feature set. A killer pool, the trophy kitchen you always wanted, proximity to lifestyle stuff, a far easier commute. Stuff like that. Something that adds zest to your life (like a buckskin horse for me).
So if you're thinking you missed your chance to sell....you probably haven't, and we should talk. If you want to sell "as-is" without lifting a finger and you want crazy money and multiple offers...then yes...those folks HAVE missed that chance.
There's a few other things we continue to watch and listen for. The job market continues to be strong. Jobs drive housing. Austin has a strong labor market and unemployment is low. This is GOOD for sellers. If the labor picture changes...it could impact the housing market. We've seen some tech layoffs, but the big tech companies in the news laying off represent a small percentage of the labor force. So far, so good. This is a good place to weather a recession.
One possibility that inventory (ie number of houses for sale) could increase is that SO MANY single family homes have been bought in recent years by investors. These properties have no homestead exemptions on them, and the appraisal district has increased the valuations. The tax on my rent house went up by $3,000, and when my lease renewed, I couldn't justify the additional $250 a month because that wasn't market rate. I was able to rent it for $150 more per month. If taxes keep outpacing rent increases...that could mean a lot more inventory coming to the market from investors. But that is likely to be a slow change...giving you time to sell if you want to BEFORE it takes shape.
Lastly, it sounds like banks are feeling some political pressure to get more conservative on loans again. We saw this in 2008-2011 as the Dodd-Frank bill implemented very conservative lending standards to try and avoid another 2008 style crisis. This is happening quietly in the background. Loan standards didn't fall to what they were in 2006, but apparently there's some tightening happening out there and that could impact buyers' abilities to qualify.
So...where are you in your decision making? I decided it was time to move forward with a dream. Thankfully, I could afford it and the opportunity presented at a time after my kids' college is all paid off and we don't have much debt.
So I took the plunge and moved forward. Can we help you do something similar? Give us a call today at (512) 888 - 9205 and let's talk!