Is the real estate business affected by the situation of banks and interest rates?

By Daniel Segovia

The first quarter of 2023 was difficult for the banking market in the United States, after the closure of entities specialized in services for cryptocurrency companies. It all started with Silvergate Bank. Then the authorities intervened with Silicon Valley Bank, the entity of technology startups, considering that it could not pay its obligations. Finally, Signature, another key piece for the cryptocurrency market, was also intervened.

Undoubtedly, the tension increased in the technology market. This created a sense of collapse, which points to a new restructuring in the US investment market.

The current banking situation in the United States is influenced by various factors, such as the post-COVID-19 pandemic, the government’s fiscal and monetary policy, and the evolution of the economy in general.

The following aspects influence:

-Low interest rates: Since the financial crisis of 2008, the Federal Reserve has created laws to avoid a similar problem and works to keep interest rates at historically low levels (although inflation does not help). The cost of money has been very low, initially, but has increased over time for banks and final consumers. This has led to people buying points to keep interest low.

-Banking consolidation: In recent years there has been significant consolidation in the banking industry, which has led to the creation of large conglomerates that can operate nationwide. This has allowed banks to create strategies to prevent users from massively withdrawing their money.

-Competition from fintech: Traditional banks are being challenged by fintechs, companies that offer innovative and convenient financial services through technology. Fintechs are gaining ground in areas like personal loans and payments, which has led to increased competition.

A low interest rate can be beneficial for banks, since it allows them to offer more attractive loans and attract more customers. However, it can also reduce profit margins.

On the other hand, a high interest rate can reduce the demand for loans, which would negatively affect the income and profits of banks. This would mean a setback in the real estate markets. In addition, it would make loans less attractive to consumers, logically affecting the home buying business.

What will be the next scenarios? The forecast points to an economic reinvention, which will be accompanied by some changes. If they are taken with caution and with the correct evaluation, they will be exceeded in the coming months.We must all prepare and educate ourselves to manage and/or protect our money in complex times, where physical assets (houses) will always prevail.