Banks Are Failing.... So What?

Banks are failing... so what?
Hey out there in internet land!

There's a lot of people curious about what's going on with the bank failures you've been hearing about and how they might be affected, so I thought I'd share a few insights. 

Yes a couple "small" (under $250Bn) banks failed in the last couple of weeks.


The gov stepped in and hopefully curtailed a domino effect of other banks failing (see 2008 crash...). However, a deeper issue going on is banks across the country are tightening up on lending. 

Most banks are fairly illiquid. Meaning, they don't have enough cash in their coffers to cover their deposits. In fact, they run at a *massive* deficit. Which in normal day to day is fine because most people leave their money in the bank where it's "safe" (you should know that the FDIC only insures up to the first $250k... so all my rich folk out there, time to diversify).

But now with fears of bank runs looming, banks are tightening up lending out money so they can maximize whatever liquidity they have. 

 

And as a measure of "bailing out the banks" the Federal Reserve secretly injected another $300Bn into the economy this past week, essentially wiping out the last 6 months of quantitative tightening to fight inflation in a matter of days.
 

So how does that affect me?
 

Well if you're a business owner you need bank loans to further invest in your company's growth. When companies grow what do they do? That's right, they *hire people*.

So credit tightening from banks generally impacts unemployment rates. Add to that insane inflation, ridiculous interest rates and a general "life unafordability" and we may have another 08 crash in the works.

 

...for the real estate market?

Glad you asked. It looks like bank lending is going to be drastically reduced, which means it's going to be even harder to qualify for a loan.... that you will be paying an overinflated interest rate for. This will further dishearten buyers which could reduce demand.

We may see a small "reprieve" in the upcoming Case Schiller index which may look like home values are recovering but that's only temporary. 

Although January marked the 4th consecutive increase in foreclosures, it's still 37% below the pre-pandemic norms. Further, foreclosure actions began on 5.6% of serious delinquencies in January.

That means that in January, of all of the loans that hit the "serious delinquency" mark (more than 90 days late), banks only started foreclosing on 5.6% of them!

5.6%........ 

To say there's a *massive* shadow inventory of foreclosures looming is the understatement of the year. 

 

There is good news however, for buyers, sellers, and for those looking for a secure place to park money while everything blows over. 

For sellers, if you sell on creative financing you can cut out the banks and make it more affordable for buyers to *pay you way more* when selling your house. Don't let the banks impending doom affect how much you get to pocket! Make sure your agent understands creative financing fully so you have all available options to maximize your sale price

For buyers, if you buy on creative financing, by cutting out the banks you can be *significantly* more competitive in your offers without impacting your monthly mortgage!

And for those looking to park money... well that's a more involved conversation. so you should schedule a time to talk with me

that's it for this week folks. I hope you found this helpful! if you know of anyone else who would benefit from being on my list, please forward my email to them so they can subscribe.

 
Real Estate in the News
-ATTOM Data
 
The Coming RISE of Foreclosures (Housing Market and Commercial Real Estate in Trouble)
-RJ Talks
-Zillow Research
-Redfin

Current mortgage interest rates


rates as of 3/17/23

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