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More Failures?!

Not for you personally, of course. But, for your bank. Do you remember the Silicone Valley Bank failure? This week Bloomberg reported that more regional bank failures could be on the way, which they heard from Pacific Investment Management. I quote, “The real wave of distress is just starting.”  That’s from Pimco’s John Murray. He was talking about the banks holding commercial loans for everything from malls to office buildings.  


You see the Fed holding rates high this long has far reaching impacts, a major one of those being in the commercial space where loans typically reset every five years. Loans coming up for that reset will see interest rates triple and that is triggering defaults, which leaves banks – especially smaller, regional ones – in a very tough position. Many of them have really gone all in commercial real estate and their exposure at the moment is bad. Even worse, many of them lent to commercial investors with very low down payments, which leads to more defaults because the owner has less skin in the game. If their payment is tripling and they can’t transfer that cost to tenants…they’re more likely to just walk away. 


It’s been something I’ve been telling you to watch for over a year now, and I’m not walking it back. I think we are bound to see something happen in the commercial space. 


Back to our world, residential real estate. 

In other news, dare I say it…We’ve had two good weeks in a row of mortgage rate improvement!  It’s put a little pep in my step, and I hope yours too. Now I know we’ve been warning buyers that when rates come down it’s going to be a whole lot harder to buy a home – which is valid because their competition is likely to flood back into the market.

But there is another potential consequence of rates improving and it might be good news for everyone. 


Inventory 

Sellers are impacted by high rates too. We call it their golden handcuffs. Many of them are literally trapped in homes they hate. As rates come down, they should feel motivated to finally make a move. That will free up some inventory! Which is good for buyers right? It’s not likely going to be a flood of inventory, I get it and those sellers then become buyers in the market which is more competition – listen, I know all of this. I still think lower interest rates will bring a lot of benefits for a lot of people. 


Not to mention that according to Keeping Current Matters, the average priced home in the US stands to appreciate $83,000 over the next five years. Can you imagine banking 83k while you sleep? Just doing what you already do, which is pay for a place to live.  

 

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