The US housing market may face two major changes after the Silicon Valley bank collapse

The US housing market may face two major changes after the Silicon Valley bank collapse.

The recent collapse of a Silicon Valley bank has sent shockwaves through the real estate industry as builders and agents scramble to understand what it means for mortgage rates and the economy in general.

In an article published Tuesday, Zillow chief economist Skylar Olsen made two predictions about how the Silicon Valley bank shutdown will affect the US housing market in 2023.

1. It can lower mortgage rates

The first prediction is that mortgage rates could drop if the Federal Reserve holds back from raising interest rates in the future, which Olsen wrote: "looked imminent only weeks ago."

Already, financial markets have pushed the average 30-year fixed mortgage rate to 6.75% - down from last week's peak of 7.05%. If the Fed doesn't issue a rate hike in March, some analysts think mortgage rates will drop further.

"Homebuyers have been very receptive to mortgage rates in recent months; when rates rose again to above 7% earlier this month, that momentum that had been building as interest rates were originally low to start the year was stifled. Today that could Lower mortgage rates are thawing what has been shaping up to be a somewhat frozen spring shopping season," Olsen wrote. "For buyers shopping now — especially in high-priced areas — a continued drop in prices will be a welcome boost to affordability, but they should still plan for price volatility."

Still, if the Silicon Valley bank meltdown warns of a looming recession in 2023, Olsen writes that the economic pain could dampen the affordability gains from lower mortgage rates.

"Lower rates will help homebuyers who are at a loss regarding affordability, but if SVB problems point to broader problems, the next recession could be deeper and longer-lasting than expected. That raises the odds that an income or job loss is beginning to affect housing markets where economic pressures are concentrated," Olsen wrote.

2. Tech centers should prepare for more pain in the aftermath of the Silicon Valley bank collapse

Olsen predicts that the destruction of the Silicon Valley bank could mean more pain awaiting tech-dominated housing markets such as San Francisco, Boise, and Seattle. These high-cost Western markets have already been hit hard by the Fed's ongoing battle with inflation, and the collapse of the Silicon Valley bank could exacerbate existing challenges.

Olsen notes, "The widespread technology downturn may be felt in housing markets such as the San Francisco Bay Area and Seattle, where technology hiring and stock prices have a significant impact. With fewer homebuyers in these markets able to afford the higher prices that have led to subsidized over the years with high incomes and stock growth, these markets will likely freeze, and prices will fall."

For buyers and sellers in these western tech hub markets and across the US more broadly, the coming months are likely to be challenging.

While lower mortgage rates can provide a welcome boost to affordability in the short term, the long-term risks associated with broader economic issues must be addressed. As Olsen advises, "Buyers today should be looking to put down roots and find a home they'll want to keep for at least several years to come in case it takes them some time to build up the equity."

Ultimately, the fallout from the SVB collapse serves as a reminder that the housing market is not immune to broader economic shifts and challenges. As buyers and sellers navigate this rapidly evolving landscape, careful planning and a long-term perspective will be essential.