Breaking Down the Recent Bank Failures
YOU’VE PROBABLY SEEN THE NEWS
I’m sure you’ve heard about the recent bank closures- starting with Silicon Valley Bank (SVB), then Signature, and then Credit Suisse’s (the largest bank in Switzerland) stock is tanking. This is causing a chain reaction in the US.
When it comes to SVB and similar banks going out of business, I want to acknowledge that this might all feel a bit doomsday. Nobody likes feeling like they don't have control of their money. Well, I've got some good news for you! To help protect your hard-earned money, head over to the FDIC website to read up on how your money is insured within FDIC institutions. An important thing to note is that the FDIC will insure up to $250,000 per person (or per EIN), per regulated institution.
Example: If you are married => yourself + your partner are joint owners of a bank account, that would equate to two taxpayer ID's and $500,000 in coverage.
Example: If you are single and have $1,000,000, you would want to open up a total of four bank accounts at separate institutions, to ensure all $1,000,000.
By educating yourself on wealth-building tactics, you are not only learning how to make money but you’re learning how you can protect your money. It can help you be proactive in safeguarding your financial journey from other unforeseen bumps in the road!
WHY IS THIS HAPPENING?
Penned by Allison Larson, founder of Novus Home Mortgage.
Because SVB's niche was coming from local startups, their clientele was rarely taking out large loans, and therefore their borrowing rate was low, SVB needed to find other avenues to invest these large startup funds. Their solution? Invest in treasury bonds. SVB was betting that the Fed would increase interest rates slower than they actually did and that consumers would continue to take out mortgages to buy homes.
Unfortunately, as we saw over the last year, the Fed increased rates fairly quickly. As that happened, the demand for bonds went down and SVB was forced to sell their bonds at a $2B loss. This of course caused quite a bit of fear, uncertainty, and doubt - resulting in their stock taking a massive hit and the management staff selling off all their personal shares.
Irresponsible money management by these small banks should be a 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 YOU AS A HOME BUYER?
It means you have choices! Mortgage rates are sitting in the mid-6% now. If you are like many people, and try to time the market where rates drop further, be aware that demand for homes will go up, causing home prices to go up and inventory ratios to reduce.
As inventory levels go down, bidding wars will sore and affordability for housing will continue to get tougher. The best option for a home buyer now is to take control of your current market inventory, purchase a home at today's rate, begin building equity, and refinance down the road. It could save you $20k-$150k in bidding wars down the road!
The Bottom Line
Inflation is still coming down. The Fed has committed to getting it down to 2% and it is currently sitting at 6%. Mortgage rates will come down, and when that happens, refinancing your home is a great option!
allison larson of 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.
Allison leads the Novus Home Mortgage team of local mortgage experts, and is always open to connect and provide advice Follow along with @mplsmademortgage on Instagram, or at allisonlarsonloans.com.
