The spring season has begun here in Michigan, but the forecast is not sunny in real estate. For any of you who are Game of Thrones fans, you remember the common theme that Winter is Coming. Well, it’s coming.
It’s been a very volatile week. Two of the largest banks in the nation have become insolvent (SVB in San Francisco and Signature Bank in New York), and one of the largest banks in the World (Credit Suisse) was bought out of near bankruptcy. Credit Suisse’s stock price was over $8 a share 12 months ago. At the time of this writing (March 20th), it traded at less than $1. In addition, regional banks are under tremendous pressure as depositors remove uninsured funds from smaller banks to larger banks deemed more secure.
There are a lot of questions to be answered.
- Are there more banks to come?
- Is your capital safe?
- What regulations will come out of this disaster?
The biggest question is, how will this economic “winter” affect us as real estate investors?
There are a few things you can count on without exception, and they are 100% guaranteed. First, as we advance, banks will be under more scrutiny than ever. This scrutiny will lead to more government regulations. This, along with new rules, will tighten lending guidelines and ultimately cost borrowers more money. There will be more bank consolidations in the future. Whether justified or not. Smaller banks will continue to be under pressure and be bought up by larger ones. Less competition leads to higher prices. As smaller, more competitive banks shrink, larger banks will gain a more significant market share and become less aggressive because they do not need the business or risk.
I will be curious to see if the Fed continues to raise rates at their next meeting this week or if they take their foot off the gas. Or will they continue to raise rates to fight inflation?
This current market is a very trying time. We need to use the skills we have developed over the years to maximize our success from now on.
- Act quickly: Time is your enemy. Sell or refi as promptly as you can. Don’t put things off.
- Keep cash on hand: Be bold and have extra money on the sidelines. Cash will become a premium from now on. And when you need it, no one will want to give it to you.
- Only invest in quality assets: These will hold their value better than less attractive assets in the long and short term. Quality assets always persevere in any market; however, this will be even more relevant in the near future.
There is little doubt a recession and higher unemployment are on the horizon. Winter is coming. Make sure you are prepared for the cold.
Feel free to reach out if you are looking for private lending during these volatile times. Call 248.729.1898 or get pre-qualified here.