In Financial Security We Trust
Friday Mar 17th, 2023
Written by: Ryan Serhant Founder & CEO at SERHANT | Host of the Business of Influence Podcast | 2X Bestselling Author
If we can't trust banks, the stock market, or cash to keep our dollars safe, what do we do with our money? With the recent collapses of Silicon Valley Bank (SVB) and Signature, people are scratching their heads, wondering what to do next. And while there's no magic bullet, there is a better answer: real estate.
SVB was the go-to bank for founders, and boy, did it shine when things were going well. When the pandemic hit and the economy boomed, tech valuations and fundraising took off. SVB deposits tripled from $60 billion in 2019 to a full $189 billion in 2022.
So, with all of this extra money, SVB made a gamble. They poured $80 billion into Mortgage Backed Securities (sound familiar?) with an average yield of just 1.5%. That might sound crazy, but when interest rates were only 3%, a 1.5% return looked good! When interest rates began to climb, however, that investment blew up in their face. They began losing money hand over fist, and last week, the bank unraveled. Its stock tanked 70% in a matter of days.
To prevent a systemic collapse, the Fed swooped in. They launched an emergency Bank Term Funding Program to shield other banks from danger and tapped into the Deposit Insurance Fund—a $100 billion reserve—to protect SVB and Signature depositors. The best part? Unlike in 2008, taxpayers aren't footing the bill.
As a result of the mayhem, some analysts expect the Fed to hit the brakes on raising rates. I call BS.
If the Fed were to stop raising rates, inflation could get out of control. Imagine $20 milk and $40 eggs. The fall of America wouldn’t be triggered by war, but by 99% of the population struggling to buy gas or orange juice. Despite Goldman predicting a halt on rate hikes, they can’t! We still need to slam the brakes on inflation. Trust me: runaway inflation is way scarier than a tech bank going belly up.
This is where real estate enters the picture...
People are sitting on even more cash than before the pandemic, but they're scared about where to park it. Thanks to COVID, residential real estate is back in the investment spotlight. The housing boom from 2020 to 2022 was a direct reaction to quarantine life. Now we're in a normal market, and guess what? People are driving up property prices with cold, hard cash.
Here's the deal: unlike cash, which is backed by lousy, devalued bonds, real estate is backed by the property itself. Your house is real, and it’s not going anywhere. While everyone is predicting a housing crash, I predict the opposite. Real estate is going to be a golden opportunity. When people want a secure investment, real estate prices are going to soar.
SVB's nosedive has everyone scrambling for a safe place to put their money. And while there isn’t a one-size-fits-all solution, there is a better option. Real estate just might be the ticket for folks navigating this wild and broken financial rollercoaster.