A closer look at the 2023 bank failures and what does this mean for homebuyers??

After the fall of three prominent banks in 2023, people are understandably concerned. While emergency funds ensured that employees that depended on these banks were paid, the prospect of more bank failures and a potential recession are lurking in the minds of the general public. However, it’s not all doom and gloom. Here are some facts to alleviate some concerns.

Which banks failed in 2023?

Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank (FRB) failed in the first half of 2023. The banking crisis of 2023 has triggered feelings ranging from deep concern to no worries at all. While each institution has been FDIC insured, that has seemed to do little to improve public confidence alone. 11th hour moves by the federal government and larger banks like JP Morgan Chase have proven sturdier safeguards for customers’ deposits.

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How do Americans feel about the 2023 bank failures?

The Gallup Survey was conducted between April 3-25 to gauge how people were feeling after the failures of SVB and Signature Bank. After the survey was complete, First Republic Bank failed, so the following data pertains to only the first two bank failures.

In the Gallup Survey, 48% of respondents said they were “concerned” about how safe their money was in a bank or financial institution. Among this number, 19% said they were “very” worried, while 29% said they were “moderately worried. Conversely, 30% of the surveyed said that they were “not too worried,” while 20% were “not worried at all.”

Why are banks failing in 2023?

Why did these three big banks fail? There are a variety of reasons that range from client withdrawals to crypto. For instance, according to Economics Observatory, SVB was vulnerable to failure because it had a “high proportion of uninsured deposits and a large proportion of deposits invested in hold-to-maturity securities.” Each bank has its unique combination of reasons for its failure. Economist Gerald Epstein goes into more detail in a compelling interview with Truthout, analyzing the effects of raising interest rates too quickly and much more.

Is my money safe in banks in 2023?

Your money is safer than it ever could be compared to 2009. Having learned from past mistakes, some safeguards were absent in 2008 that are here now that will protect the system as a whole. For one, it’s much harder to qualify for a loan. Though underwriting feels like a pain, it’s proof that your lender is doing a good job at making sure you can afford your future mortgage, which helps banks do well, since money is flowing back to the lender.

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Will the 2023 bank failures affect home loans?

Probably not. The three banks that failed weren’t doing a lot of residential real estate. Instead, they invested a lot in commercial real estate, which has not been doing well, especially after remote work trends and the increased mortgage rates. On the residential real estate side, there isn’t much systemic risk despite rising rates.

What are the safeguards to help home loan borrowers? 

Financial institutions have learned from past failures. Before the crash of 2009, loans were given out much more freely and easily. Today, the qualifications are much stricter. Banks and lenders are giving away fewer risky loans. They are also not pushing the ARM loans because they had a higher rate of loan defaults, especially when offered to individuals that weren’t financially stable.

What about real estate investments in banks? Should I worry?

Not when it comes to residential real estate. These three banks all made a lot of commercial investments exposed to rising interest rates. Commercial real estate has also taken a hit in the wake of more work-from-home positions.

Residential real estate is still protected and stable, and there are a lot of safeguards in place compared to 2009. For instance, people generally don’t buy underwater properties, and loans aren’t as risky as those offered before 2009.

Rate hikes will make the terrain more challenging for real estate across the board. However, homebuyers still have options, such as paying down points, using equity to pay toward a new construction home, and consulting their lender to choose the safest loan product for their needs.

We’re here to chat about banking system concerns & more.

If you want to become a homeowner in 2023, do not let the collapse of Silicon Valley Bank or the current housing market get you down. Marketplace Homes has helped countless clients find solutions to buy a dream home before and after the 2009 crash. We’re still here, and our realtors and solutions experts are ready to chat and give you some options for your unique situation.