On March 10, California regulators seized Silicon Valley Bank — a storied cornerstone of the startup economy, and, as of last year, the country's 16th largest bank.
They declared it to be "conducting its business in an unsafe manner" and insolvent after investors and depositors tried to withdraw $42 billion in deposits the previous day, leaving the bank with a negative cash balance of nearly $1 billion, court documents said.
The bank was in sound financial position, but it sold U.S. treasuries and mortgage-backed securities earlier that week and suffered a loss of $1.8 billion. That's what prompted customers to try to get their money before they couldn't.
The Federal Deposit Insurance Corporation announced it would guarantee all deposits in response to panic across the Bay Area that businesses and nonprofits with millions of dollars in the failed bank's vaults might be unable to access their cash and be forced to shutter.
The following Monday, stock in San Francisco-based First Republic Bank sank nearly 62% and shares of other regional banks reportedly suffered losses due to uncertainty in the financial markets following the failure of Silicon Valley Bank.
And less than a week later, regulators seized Signature Bank in New York after it failed.
In his annual letter to shareholders on Tuesday, April 4, Jamie Dimon, president, CEO and chair of JP Morgan Chase, said the banking crisis is not over and "there will be repercussions from it for years to come."
Silicon Valley investors, startup employers, California budget analysts and lawmakers are now watching closely to see whether this is the end of a minor crisis — or just the beginning of a major one precipitated by higher interest rates.
We reached out to a handful of industry leaders to get their take on the following question: How do you think the collapse of Silicon Valley Bank will impact the local housing market? The interviews have been lightly edited for length and clarity.
Founder, DeLeon Realty
Ken DeLeon is the founder of DeLeon Realty. He has a degree in mathematics and economics, and graduated from Berkeley Law and Stanford Graduate School of Business. The Wall Street Journal ranked him as the nation's No. 1 real estate agent in 2011.
"The surprising and rapid implosion of Silicon Valley Bank (SVB) may have a large impact on the startup ecosystem, yet will have a minimal impact upon Silicon Valley real estate.
SVB was a foundational player in the startup world through offering non-traditional loans to help provide initial liquidity to promising, but unprofitable startups.
During my time as an attorney at Wilson Sonsini Goodrich & Rosati, we would always refer our clients to SVB as they were the default bank for all startups.
While the star of the startup world, SVB was a niche player in providing mortgages. By design, SVB would only provide mortgages to elite VC partners or successful startup founders, a relatively small group of buyers.
Through representing buyers in California for homes over $20M, I saw the diversity of funding sources for these high-end homes. Most of my clients in this range would pay all cash, but for those who were getting mortgages, First Republic is the dominant player whereas SVB played a minor role, utilized by less than 10% of all clients above $15M, less than 5%of all clients for homes above $5M, and 0% for homes below $5M. So, the impact of losing SVB on Silicon Valley real estate will be minimal in the short run.
The long-run concern is that startups will not be as successful through losing this foundational financing partner and that may attenuate future Silicon Valley growth and lower real estate appreciation, but the immediate impact will be negligible due to SVB being such a niche player in home purchases."
Arti Miglani has ranked among the top 1% of top-producing Realtors in Silicon Valley during her 20-plus years as a Realtor practicing in the Bay Area.
"The downfall of SVB followed by the collapse of Signature Bank and financial losses at First Republic Bank has caused concern in an already downward trending economy. The real estate community and homebuyers and sellers are naturally asking how the collapse of these banks will impact the local housing market.
Lawrence Yun, the chief economist of the National Association of Realtors says that 'The Silicon Valley Bank failure, along with a few other banks, means that the Federal Reserve cannot be so aggressive in raising its short-term interest rates. Therefore mortgage rates will decline.'
Safer assets like treasury bonds have dropped their interest rates and mortgage rates have followed this trend since SVB's collapse — there is a correlation between the two.
Census tells us that there is a continuous shortage of housing in the Bay Area. With the decline in mortgage rates and a shortage of home inventory, homebuyers will be back in the market to purchase a home. Home ownership is the only tax shelter for homeowners.
On the Midpeninsula, sales of homes under $4 million are moving within a few days of going on the market this season and often with multiple offers. Therefore, the real estate market will continue to be steady, but strong, through the end of the year with prices staying relatively flat."
Financial consultant, Bay Area
Eric Trailer is a former Palo Alto resident with a 28-year history in financial consulting, specifically banking, financial planning and corporate finance, who continues to serve the Bay Area.
"There are really two impacts as a result of this failure: One, greater affordability with lower rates; and two, higher lending standards due to tightening liquidity.
Addressing rates first, you can see the drop in rates on the 10-year treasury, now hovering around 3.56%, down about a half percent since March 1 and up slightly from the SVB-collapse low of 3.4%. While the 10-year treasury is not a direct reflection of mortgage rates, it's an index that reflects how mortgage-backed securities are trading.
A half-point drop in rates is great for housing affordability, as it equates to a 4.5% increase in purchasing power. This is great news for both buyers and sellers since affordability has increased, and median prices may have stabilized after declining about 35% since a year ago.
Addressing the subject of tightening liquidity, it means that a bank's lending standards are raised, which will make it more difficult for the average buyer to obtain a loan. While I don't believe that SVB had a significant number of preapproved, residential mortgage borrowers in the market when they collapsed, I would recommend that any current buyers check in with their mortgage professional to understand whether their current lender has changed any of their lending guidelines that may negatively impact their approval status.
Keep in mind, however, that Congress is currently evaluating whether all deposits should be insured, which would eliminate liquidity concerns but would raise the cost to insure deposit accounts above the current $250K level."
Vice President, Experience, Sereno Group
Alana Corso is Realtor and Vice President, Experience at Sereno Group in San Carlos. She has lived and worked in the Bay Area for more than 20 years.
"The failure of Silicon Valley Bank impacts a few layers in our residential housing market. I think the most consequential is the psychological impact to consumers. Since the Federal Deposit Insurance Corp. (FDIC) ended up guaranteeing assets at SVB for bank customers, it helps with the financial stability, but it still shakes the consumer's psyche. We haven't seen a major financial institution fail since 2008 so many have not been through this type of event in many years or ever.
The negative news, subsequent stock market volatility and panic with First Republic Bank and Credit Suisse further exacerbates the negative impact to the psyche of the consumer and makes one wonder, "what else can happen?" Several economists share that we are teetering on a recession and with a major bank failure in our own backyard, it doesn't bolster economic confidence.
On a positive note, the Bay Area has proven historically to be a strong real estate market and weathers recessions and negative economic news differently than the rest of the nation with our compressed housing inventory, innovative technology and leading research institutions. We tend to enter recessions later than the nation and exit quicker, which helps insulate our residential real estate market.
My clients often share negative news headlines with me, but they are from a national perspective and not what is actually happening on the ground here in the Bay Area. Real estate is highly personal and hyperlocal, so what works for one person in our local market may not work for the next."
Realtor, Sereno Group
Leannah Hunt has lived in Palo Alto for more than 50 years and has been an active Realtor representing buyers and sellers of residential properties for over 30 years. She has been consistently recognized as a Top Producer.
"It was very alarming to hear of the failure of Silicon Valley Bank. It had a sterling reputation among members of the local high-tech community, so many of whom did business with the bank.
I think this alarm was a very broad-based reaction, from new customers to its longtime wealthy customers, the feds moved in quickly to protect those customers.
It has brought to light to members of the public issues involving oversight of banks. In the short run, people are really startled by what happened to Silicon Valley Bank and by the problems at First Republic Bank, a very big bank with locals.
I know some customers have gone to larger banks like Wells (Fargo) and Chase.
This and other economic factors have definitely contributed to a slowdown in the local housing market. Many are being affected by stock market events and tech layoffs. The long-term impacts of the work-from-home trend among employers have certainly had an impact on, for example, the local condominium market.
On the positive side, recent jobs reports have been very strong, so we are hoping the spring housing market will begin to ramp up again in April and May. A lack of inventory continues to be the biggest challenge for our local market.
The recent problems in the banking industry have served as an education for the general public as to how banks do business and how quickly things can change. And here in the digital era, those changes can occur in a matter of hours, or even minutes."