Zillow: Housing market stares down 2 shifts in the wake of SVB

The recent Silicon Valley Bank collapse has sent shockwaves through the real estate industry as builders and agents scramble to figure out what this means for mortgage rates and the broader economy.

In an article published on Tuesday, Zillow chief economist Skylar Olsen gave two predictions on how the shutdown of Bank of Silicon Valley could have an impact on the US real estate market in 2023.

We’ll take a look.

1. It could lower mortgage rates

The first prediction is that mortgage rates could fall if the Federal Reserve forgoes future rate hikes, which Olsen writes “seemed imminent just a few weeks ago.”

Already, financial markets have pushed the average 30-year fixed mortgage rate at 6.75%, down from last week’s peak of 7.05%. If the Fed did not issue a rate hike in March, some analysts believe that mortgage rates would fall even further.

“Homebuyers have been very sensitive to mortgage rates over the past few months; when rates climbed back above 7% at the start of the month, it snuffed out the momentum that had been building as rates initially fell at the start of the year. Today, lower mortgage rates could thaw what was shaping up to be a pretty frozen spring home shopping season,” wrote Olsen. “For buyers buying now, especially in high-priced areas, a sustained rate cut will be a welcome boost to affordability, but they should always plan for rate volatility.”

That said, if the collapse of Silicon Valley Bank heralds an impending recession in 2023, Olsen writes affordability gains resulting from lower mortgage rates could be tempered by economic difficulties.

“Lower rates would help homebuyers who are affordably exhausted, but if SVB’s problems point to broader problems, a coming recession could be deeper and longer than expected. This increases the chance that income or job loss will begin to affect housing markets where economic stress is concentrated,” wrote Olsen.

2. Tech hubs should prepare for more pain in the wake of the Silicon Valley Bank collapse

Silicon Valley Bank’s downfall, Olsen predicts, could mean more pain awaits tech-dominated housing markets like San Francisco, Boise and Seattle. These high-cost Western markets have already strongly affected by the fight against inflation led by the Fedand the collapse of Silicon Valley Bank could exacerbate existing challenges.

As Olsen notes, “A broad-based tech downturn could be felt in housing markets like the San Francisco Bay Area and Seattle, where tech employment and stock prices are having an outsized effect. With fewer home buyers in these markets able to afford the high prices that have been supported over the years by high incomes and inventory growth, it is likely that these markets would cool and prices would decline.

For buyers and sellers in these Western tech hub markets, as well as the broader United States in general, the coming months are likely to be challenging.

While lower mortgage rates could provide a welcome boost to near-term affordability, the longer-term risks associated with broader economic issues cannot be ignored. As Olsen advises“Buyers today should be looking to put down roots and find a home they want to keep for at least the next few years in case it takes a while to build up capital.”

Ultimately, the fallout from the collapse of SVB is a reminder that the housing market is not immune to broader economic changes and challenges. As buyers and sellers navigate this rapidly changing landscape, careful planning and a long-term perspective will be essential.

Want to stay up to date on the housing market? follow me on Twitter To @NewsLambert.

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