In Pursuit of Financial Stability?

In times when banks, stock markets, and cash no longer guarantee the safety of our finances, where should we invest our money? Following the recent collapses of Silicon Valley Bank (SVB) and Signature, individuals are seeking alternative investment strategies. One promising option is real estate.

SVB had been a popular choice for founders during prosperous times. Amidst the pandemic and subsequent economic boom, tech valuations and fundraising flourished, with SVB deposits surging from $60 billion in 2019 to $189 billion in 2022. However, when SVB invested $80 billion into Mortgage Backed Securities at an average yield of 1.5%, the bank's fortunes took a turn for the worse. As interest rates increased, SVB began hemorrhaging money, leading to a 70% drop in its stock value within days.

To avert a systemic collapse, the Federal Reserve intervened with an emergency Bank Term Funding Program and utilized the $100 billion Deposit Insurance Fund to safeguard SVB and Signature depositors. Thankfully, taxpayers are not responsible for covering the costs this time.

Despite the chaos, some analysts predict the Fed will refrain from raising interest rates further. However, this would risk exacerbating inflation, potentially leading to exorbitant costs for everyday goods and jeopardizing the nation's stability. Curbing inflation remains a priority, even in light of a tech bank's downfall.

This brings us to the potential of real estate investments. With people holding more cash than before the pandemic, they are seeking secure investment options. The housing boom between 2020 and 2023 has been a response to the quarantine experience, and now, with a more stable market, property prices are being driven up by investors using liquid assets.

Unlike cash, which is underpinned by increasingly devalued bonds, real estate is secured by the tangible property itself. While some foresee a housing crash, the opposite could very well happen. Real estate may become an increasingly attractive opportunity as people search for secure investments, causing property prices to climb further.

The downfall of SVB has left many searching for safe financial havens. Although no perfect solution exists, real estate offers a viable alternative for those navigating the unpredictable financial landscape.