A byproduct of the Silicon Valley Bank (SVB) fallout could be a real estate market that may be heading downhill further as the U.S. Federal Reserve continues to wrestle with inflation and tightening monetary policy, but that’s not all.
Fortune noted that data from Zillow shows that 38% of 200 housing markets in the U.S. saw a month-to-month decline during the month of February. A major factor in that is certainly rising interest rates, which did fall a bit once news hit of the collapse of SVB.
Bets are now coming from Wall Street that the Fed will be less aggressive given the latest news on SVB. Of course, now the debacle with European bank Credit Suisse has come into the forefront, putting the global financial system in question with regard to stability.
“Credit Suisse is in principle a much bigger concern for the global economy than the regional U.S. banks which were in the firing line last week,” Andrew Kenningham, chief Europe economist with Capital Economics, said in a research note Wednesday. “Credit Suisse is not just a Swiss problem but a global one.”
Amid all the smoke from the banking fallout, the Fed may adjust its rate-hiking measures accordingly in an attempt to not rattle the capital markets further. As mentioned, this could mean bets on less rate hikes could be winning tickets for Wall Street.
“This has to do with the market shifting its expectations for Fed rate hikes in the rest of 2023,” said Matthew Graham, chief operating officer at Mortgage News Daily. “Specifically, the market now sees the Fed hitting a ceiling rate that’s more than 1.5% lower than it was at the beginning of last week. If that continues to be the case in the coming days, mortgage rates could move down even more.”
Bearish Real Estate ETF Jumps Higher
In the meantime, bearish bets on real estate have been paying off the past month. The Direxion Daily MSCI Real Est Bear 3X ETF (DRV ) is up over 25% within the last 30 days as the fallout from banking issues could be exacerbating real estate price declines — of course, that could reverse if mortgage rates decline.
DRV seeks daily investment results equal to 300% of the inverse of the daily performance of the MSCI US REIT Index, which is a free float-adjusted market capitalization weighted index that is comprised of equity REITs that are included in the MSCI US Investable Market 2500 Index. DRV invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index.
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