Some perspective on bank failures and home prices

Do you think these recent bank failures that have been in the news mean that home values are going to drop?

It’s not surprising if you do. When most people hear about a crisis in the banking industry, their minds go right back to the last financial crisis in 2008 that was caused by the mortgage market meltdown.

But really, what we’re seeing today is something very different – and it’s actually a lot more similar to what we call the Savings and Loan Crisis that happened in the late 80s through the early 90s.

Back then, just like today, the Federal Reserve rapidly hiked interest rates to fight high inflation, which devalued long-term assets held by small banks and caused a lot of them to fail.

But even though rates were high and the banks were failing, home prices kept going up!

Before the crisis, U.S. home values skyrocketed 112% from 1976 to 1985. Sounds kind of like what happened in 2020 and 2021 right?

But in the 10 years DURING the crisis, appreciation slowed but values still went up 40%. And after the crisis was over? Prices rebounded and appreciated 124% from 1996 to 2005.

As we watch this current banking crisis unfold, nobody knows for sure how contagious it will be, but I just think about the saying: “History doesn’t repeat…but it often rhymes.”

According to the most recent batch of housing data, home prices are already moving higher (numbers below show increases compared to the previous month):

• CoreLogic: prices up 1.6% in March 2023
• Black Knight: prices up 0.5% in March 2023
• Zillow: prices up 0.9% in March 2023
• FHFA: prices up 0.5% in February 2023
• Case-Shiller: prices up 0.2% in February 2023

With a significant housing shortage, lowering inflation and mortgage rates moving down, we expect that home prices will continue to appreciate as we work our way through this crisis.

All of this goes to say, you should not be worried about buying a home in this market. If history tells us anything, it’s that housing does very well in times of economic turmoil – especially compared to other asset classes.