The Federal Deposit Insurance Corporation (FDIC) shutdown Silcon Valley Bank on Friday and put them into receivership on Friday. This is the largest bank to fail ($200B) since Washington Mutual ($300B) in 2008. Starting Monday the FDIC has said that clients will be able to withdraw up to $250,000 of their insured deposits. This bank claimed to back 50% of the 130,000 US based Venture Capital backed companies. For larger startups with monthly payrolls in the $1M range this amount will be insufficient. The collapse was caused after a classic ‘run on the bank” after SVB announced that it was selling bond holding to be able to cover client withdrawals – much of their holdings were in Treasury bonds which they bought at a price under current market value, causing SVB to sell at a major loss. While there was minor panic selling across the markets, it died down by weeks’ end. Most economists don’t think it will cause major waves in the banking world due to the niche that SVB bet on.
Mortgage Rates improved marginally this week in response to news of a softening job market and instability in the banking sector. Rates are up approximately 3% from this time last year.
Jobs – the number of people filing for unemployment for the first time bumped up above 200K for the first time since early January. While most of the cuts came from the tech sector there were cuts in all 30 industries which hasn’t happened for a decade. The BLS Jobs Report showed 311,000 job creations in February, 1/3 of which came from the hospitality sector which is almost back to pre-pandemic levels. Unemployment ticked 0.2% to 3.6% as more people joined the work force than jobs were created. Average weekly earnings declined slightly to a 4% year over year increase – a large drop from last month’s reading of 4.7%. This is a good sign for inflation and mortgage rates.
Home Values – declined 0.2% in January but remain up 5.5% year over year. Core Logic predicts home values will increase a steady 3.1% during 2023.
Mortgage Applications to purchase homes increased 6.6% last week and are now down 44% year over year. Refinance application volume rose 9.4% last week and is down 76% from last year.