Wild times create opportunity – a perspective on Silicon Valley Bank and the real estate market

March 13, 2023

For those of you who have been with me since 2007 when I started this newsletter, we have been through tough times before. Many of us have been through the bewilderment of the pandemic, of course, but the upheaval of confusing economic times that is upon us now, with interest rates going ever higher for reasons that are hard to fathom and property values stubbornly refusing to fall (much) and the failure of large institutions that we have relied on – it’s been a while since these things have happened.

To put in perspective the failure this week of Silicon Valley Bank, it’s important to remember that this was a regional bank with stakeholders from a very specific community. That community is small and everyone knows everyone and rumors travel like proverbial wildfire. And when the most famous among them speak, the others listen. In fact, if communication in that community was just a little slower, I would posit that this institution might not have failed. But, be that as it may, the circumstances that led to the dramatic failure were driven at least in large part by rising interest rates, and the relative return on some of the bank’s investment being disappointing in relation to the interest rates that are now prevailing. I heard a number of people say last summer that the Fed was just going to keep raising rates until something breaks – and SVB definitely broke this week.

Also pulled into the fray was San Francisco based First Republic Bank, but that seems to have been location/bank size based confusion in the stock market and all indications I can see seem like FRB is going to be fine. To read their statement filed with the FDIC on Friday, click here.

We are at an interesting time in the market in the Bay Area. We have very low inventory of single family homes available for sale, in some part due to potential sellers being worried last fall that this spring would not be a good time for them to sell. So they waited on the fence and now their homes are not ready to sell – and it is an even better time to sell just because there are so few people ready to do so. Buyers are ready to buy, if only they can find what they want despite the rates being higher than they’d like because they – wisely – realize that rates might get worse and prices might not get better. And some homes are getting a dozen offers and others are mis-priced and sitting for a long time providing a great opportunity for savvy buyers. For condos in larger buildings throughout the Bay Area and especially in SF, it continues to be a difficult time, and a great purchasing opportunity for investors and owner occupants alike. Meanwhile, after a few months of low activity, people are feeling the very real need for new housing due to life changes. My advice to you and yours if you are thinking about a change is to take advantage of the current confusing times and act when others are not doing so. There is always the best opportunity when others are too distracted or too worried to act or they are just confused as to the best strategy. If you’d like to have a conversation about how to best take advantage of the current climate, of course, just let me know and I would love to help.