March 2023 Real Estate Market Update
March saw growing instability in the real estate market after several high profile bank failures caused uncertainty to spread among lenders and borrowers alike. Commercial real estate, in particular, has seemed to be in particular trouble, due to failed attempts by employers to entice workers back to their pre-pandemic commutes. Despite this, however, homebuilders remain cautiously optimistic that the market may turn around soon.
Two Banks Fail, Leading to Worries Throughout the Industry
March saw two high profile bank failures within days of one another, one of which is the second largest bank failure in American history. Silicon Valley Bank (SVB) and Signature Bank both saw bank runs after depositors lost faith in the bank, causing the government to intervene and placing the banks under the receivership of the FDIC. Part of what made these failures so disconcerting was how sudden they were, with both banks having been seen as mostly stable days before their respective failures.
Workers Refuse to Return to the Office
Commercial real estate has been struggling since the COVID-19 pandemic hit in 2020, when many workers began to work from home. While undoubtedly convenient for many, this left many companies with enormous office buildings that were now largely empty. Even with many companies trying to push workers to come back to the office, many of these buildings remain empty, and there are few companies looking to expand, causing the value of these properties to decline.
High Interest Rates Stifle Purchasers
An additional factor is increasingly high interest rates, which have left many prospective homeowners concerned about the size of their mortgage payments. The interest rates for 30-year fixed rate mortgages with conforming loan balances reached 6.42% as of March 23, which was down slightly from the beginning of the month, but more than twice what it was two years ago. This has discouraged many buyers from purchasing, keeping mortgage demand down overall.
Homebuilders Remain Cautiously Optimistic
That being said, not everything is doom and gloom. Homebuilders remain somewhat optimistic about the state of the real estate market in the near future, citing relatively low inventory compared to demand for new homes. Many new construction projects are still going forward, hoping to fill this demand and restore some stability to the housing market.
