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- 🪩 FED Meeting Predictions | SVB Impact of Real Estate | Bankception
🪩 FED Meeting Predictions | SVB Impact of Real Estate | Bankception
Michael DiLucchio
March 20, 2023
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Here’s what we’ve got for you today:
Looking Ahead: FED Meeting 3/22 📆
How SVB affects Real Estate 🏡
Bankception 🏦
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Nuwave Rates Today 📉
Looking Ahead - FED Meeting 3/22 👀
Expectations are now that the FOMC will announce a 25bp rate increase in the federal funds rate at the FOMC meeting this week, and they might even pause hikes.
"We look for the Fed to raise its target range for the federal funds rate by 25bp to 4.75-5.0%.
The recent market turbulence stemming from distress in several regional banks certainly calls for more caution ... In the absence of further events, policymakers are likely to conclude that inflation stability remains a key monetary policy priority and, given that the economic data point to real side resilience and inflation persistence, a view a 25bp rate hike is warranted. Forward guidance, however, is likely to be somewhat dovish, highlighting the emergence of downside risk to the outlook and the policy rate path."
We will be releasing a “FED Lunch edition” of the newsletter Wednesday - keep an eye out for more there
How SVB impacts Real Estate 🏡
The SVB collapse created mass uncertainty in the market.
Here are the top real estate impacts:
FED will slow the pace of rate hikes (could potentially pause completely)
Interest rates will fall - helping affordability
Inventory should increase moving into spring
Slower Rate Hikes
As the 10yr T-bill continues to fall, we should continue to see rates fall slightly this week and stabilize over the next two weeks.
In the last month, we have seen rates have wild swings in both directions. These swings are terrible for new home buyers. It becomes increasingly difficult for them when it is impossible to accurately set expectations with clients.
Hopefully, slowing the rate increase (or pausing it completely) on Wednesday helps the market digest the recent news and stabilize.
If that happens, it will help with rate & payment expectations, which should encourage borrowers to reenter the market.
Lower Interest Rates
Rates should decrease this week. This will improve the affordability issues felt by homebuyers over the last few quarters.
Homebuyers have been sensitive to swings in mortgage prices in recent months. However, a drop in rates could “thaw what was shaping up to be a fairly frozen spring home shopping season,”
The chart below shows the share of median household income needed for a new mortgage in Nashville. When rates were up above 7% at the beginning of March, that figure rose to 44.3% in Nashville.
That is unsustainable for buyers in this market.
As rates come down, the portion of that income going toward housing comes down as well. This should positively impact both seller sentiment and buyers in the market.
Rising Inventory moving into Spring
The second impact of falling interest rates is seller sentiment.
Outside of death, divorce, and job movement, it is difficult to encourage a seller to list their home when mortgage rates are so high.
Sellers are hesitant to enter into a much higher monthly payment and, as a result, decide to “wait it out” 🙄.
As rates begin to fall (even if briefly) and spring enters the chat, there is a potential for more inventory to hit the market.
Bankception 🏦
With the sudden collapse of the banking system, the most prevalent wake the is mass consolidation of banking. If this trend continues, we are going to begin to see an eradication of regional banking.
Banks bailing out banks…not something we typically see in history.
Last week, we saw First Republic (14th-largest bank in the US) infused with $30 billion from the US’s largest banks (led by JPMorgan and BOA) to stabilize the uninsured deposits.
“The actions of America’s largest banks reflect their confidence in the country’s banking system…”
“…Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most.”
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”
Following that news, the Financial Times reported Sunday that UBS agrees to buy Credit Suisse (43rd largest bank) for cents on the dollar.
This would combine the two largest banks in the country.
As we noted in our previous post - the ECB raised rates last week by 50bps in the face of the banking crisis.
This is a direct result of the rate hike.
The FED should be looking to Europe as an example of exactly what not to do in the upcoming meeting.
Regional banking is good. In short, they have actual roots in the communities where they work. They offer a wide breadth of lending options (construction lending, land loans, business loans, etc) that positively impact the community.
We do not want these to go under the umbrella of massive conglomerates like JPMorgan and Bank of America.
The Cul-de-Sac
Mark your GCal & Potential Impacts 📆
FED Announcement & Press Conference - 3/22
Fun Fact for your Monday - every date this week is a Palindrome! Today is 3/20/23 - the same forward and backward 🙃
That’s all we have for today. Stay cool out there 😎
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