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Anyone who believes emotion and herd-mentality-panic are not important in business, look no further than the demise of Silicon Valley Bank. Customers of SVB were withdrawing their deposits beyond what it could pay using its cash reserves, and so to help meet its obligations the bank decided to sell $21 billion of its securities portfolio at a loss of $1.8 billion. (SVB had about 55% invested in fixed-income securities, such as U.S. government bonds). The drain on equity capital led the lender to try to raise over $2 billion in new capital. The call to raise equity sent shockwaves to SVB’s customers, who were losing confidence in the bank and rushed to withdraw cash. A bank run like this can cause even a healthy bank to go bankrupt in a matter of days, especially now in the digital age. Expect any reduced regulation to be reinstated soon…..as well as new ‘insurance fees’….? If you can insure a $2 million home, surely you should be able to insure a $2 million deposit…for a fee?
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The rich are moving their cash out of smaller banks…. Cash was king until a few days ago…..many moved cash into higher-yielding treasuries and money markets. $2 billion per day was moved into Schwab and other custodial accounts. Relationship banking with smaller banks is being questioned whereby balances had to be kept based on a mortgage… Mark Zuckerberg got a 1% interest rate mortgage based on keeping a large deposit in the bank. (CNBC)
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“Single-Digit-Millionaires’? Yup inflation has eaten away at the cache of calling yourself a ‘millionaire’…..a million dollars alone is simply not good enough to consider yourself rich anymore……then again, everything is relative! Around 1.5 million US households have a net worth of $10 million or more…..or 1.2% of all US households…..Are YOU one of the 1.2%??? (“The 1%” is SO 2021!)
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73 banks have failed in the last 10 years, and all had their deposits backstopped…..
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The 30-year fixed-rate mortgage averaged 6.60% in the week ending March 16, down from 6.73% the week before. A year ago, the 30-year fixed-rate was 4.16%…..after hitting a 2022 high of 7.08% in November 2022. Investor home purchases dropped by 45.8% annually in the 4th quarter of 2022, compared to purchases in the 3rd quarter, investor home buying fell by 27% – the largest quarterly decline recorded except for the pandemic’s beginning. Las Vegas and Phoenix saw the biggest decline. The biggest drop was in single-family home purchases, which fell 49.8% annually in the fourth quarter. Maybe Robert is right after all and November/December 2022 was the ‘bottom’ of this market? (CNBC)
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If $4,444/sf represents a ‘huge discount’, I’ll take it! A 13,500sf SOHO building just sold for $60 million to the DYSON family of the UK.
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The primary causes of the 2008 crisis — a glut of poor-quality subprime mortgages that had been spread round the world via derivatives on to the balance sheets of poorly capitalized banks — do not apply in 2023. Credit quality remains decent. And bank capital is two to three times stronger than it was a decade and a half ago. (FT)
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Want to know how your LOCAL economy is performing?…if consumer spending is a huge chunk of CPI, yes spending habits matter and they can be measured by how much sales tax is being collected. Local sales tax collections in New York state increased by 14.1% in February compared to the same month in 2022…..
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100% LUXE-flation? A home in the Hampton’s (NY) that sold for $91.5 million is DOUBLE the price paid for it in 2020. (Yes, it had been renovated too, again showcasing how many are willing to pay a huge premium for instant gratification, and zero renovation-aggravation.) WSJ
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Florida’s Gross Domestic Product increased by 24% between the first quarter of 2020 and the third quarter of 2022, outpacing the nation by 23%, mostly fueled by in-migration and tourism. (WSJ)
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The information-technology industry directly accounts for more than 10% of the U.S. economy, and about 8% of all jobs. The median pay of US tech workers is almost double that of regular average US workers. (WSJ)
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JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5bn into First Republic, a California-based lender. Goldman Sachs and Morgan Stanley will put in $2.5bn apiece while BNY Mellon, PNC Bank, State Street, Truist and US Bank are depositing $1bn each. (FT)
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Signature Bank became a place where crypto companies deposited their cash and the bank’s deposits soared from $40 billion in 2019 to $106 billion in 2021. The move seemed like another big success as the price of Bitcoin soared to $60,000 in late 2021. Then the price plunged to only about $16,000 and crypto financial companies including FTX collapsed, leading to a major loss of deposits for Signature. With fewer deposits to lend, Signature was forced to cut back on lending.
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The COVID years fueled the direct-to-consumer trend that is fueling corporate profits and will continue to do so for years to come. When you don’t have to stock and staff a retail store to sell a sweater, the profits can be HUGE. And can also allow for price cuts when/if consumer demand wanes while still maintaining profitability.
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Another key difference between last week and 2008’s crisis: the trigger for this turmoil wasn’t a credit crisis. There’s no talk of subprime mortgages going bust or esoteric financial instruments blowing up. Rather, regional banks have been hit by falling prices for securities considered the safest in the world: U.S. Treasury bonds and government-backed mortgage securities. Some banks bought massive amounts of these bonds as deposits swelled, figuring they were risk free. What everyone seemed to have missed is that these securities would burn holes in balance sheets as interest rates soared, pressuring bond prices. As the Fed hiked rates at the fastest pace in 40 years, unrealized losses piled up, reaching $620 billion as of December, according to the FDIC. Those losses wouldn’t be a problem if banks could hold the bonds to maturity and wait for them to pay off at 100 cents on the dollar. That’s working for the big banks, but it’s not what happened at SVB, which faced a liquidity crunch after disclosing unexpected losses on its bond portfolio. That triggered a run on its largely uninsured deposits, stoking fears that other regional banks with a similar deposit profile would go down the same way. (BARRONS)
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With less competition, lenders will be able to charge more for loans, as owners seek to refinance loans that have become due or buy new properties.
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The consumer-price index, a closely watched inflation gauge, rose 6% in February compared to 2022, down from a 6.4% gain the prior month, the smallest increase since September 2021. When excluding volatile food and energy costs, prices advanced a slightly slower 5.5%. Economists view so-called core prices as a better indicator of future inflation.
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Monaco—a global tax haven—had a banner year in 2022, and a lack of supply means that is set to continue. With just under 500 acres of land, the total value of transactions was $3.75 billion in 2022, eclipsing the previous record, set in 2019, by about €750 million. Transactions were up 10% compared to volumes experienced in the last 5 years. Total sales of apartments with 3 bedrooms or more increased by over €830 million annually in 2022 and accounted for more than 80% of units sold in new buildings. Monaco levies zero real estate, zero capital gains and zero personal income taxes. Imagine what you could spend if you paid zero taxes? A cheeseburger in a casual restaurant costs around $40…..and a small bottle of Coke costs $5. 70% of residents are millionaires.
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If sales rose 17.5% but profits rose 27%, you can be certain retailer Zara is adding on ‘a bit extra’ while the consumer can still afford to pay higher prices….. meanwhile, BMW has said it will stop raising prices this year ‘after years of passing higher costs on to the consumer’. Lennar’s profits jumped over 18%….fueled by higher prices, not higher costs…. (FT)
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A rush by New York City real-estate investors to yank money out of Signature Bank last week played a significant role in the bank’s collapse, according to building owners and state regulators. The bank’s $35.7 billion in real-estate loans accounted for about a third of its $110.4 billion in assets at the end of 2022. (WSJ)
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The era of ‘cheap money’ is over? Credit card debt was never cheap…. it averaged around 15% in 2019 and ‘dipped’ to about 14.5% in 2020…. CHEAP MONEY??? Americans have close to $1 trillion in credit card debt…..it was $927 billion before Covid struck 3 years ago. The state with the lowest average credit card debt per person in the US – Kentucky – is over $5,400….
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Some good news: Plunging oil and natural-gas prices are pumping up economic growth, putting money into consumers’ pockets, boosting confidence and easing pressures on government budgets. The price of a barrel of oil has fallen by more than a third since the middle of 2022, to about $77 from $121, below its prewar level. A mild winter, especially in Europe, has helped too. (WSJ)
~Leonard Steinberg
COMPASS Catch
1 Bed | 1 Bath | $1,295,000 | Laurie Stolowitz and Joanne R. Wenig
Breathtaking city and river views await you in this sunny, high-floor home located in a full-service condo with a wide range of amenities. The open living-dining room has floor-to-ceiling windows facing south and west with sweeping views of the City skyline and a large alcove perfect for a home office.
♦
5 Bed | 5.5 Bath | $3,185,000 | Sam Augustine
This Swiss Modern-inspired home is well-appointed with thoughtfully considered warm finishes throughout. The seamless floor plan, an abundance of natural light, and vaulted bedroom ceilings complement the high-end finishes throughout. Featuring Caesar stone countertops, white oak floors, a grand primary suite with a fireplace, expansive primary suite views, custom closets, and the list goes on. Offered with a brand new Tesla Model Y, this residence is ready for its first owner. All this and within close proximity to all the amenities of the Roaring Fork Valley.
♦
1455 Ocean Drive, Miami Beach, FL
2 Bed | 2 Bath | $6,375,000 | Nancy BatchelorLive at one of Miami Beach’s most coveted oceanfront buildings; the epitome of luxury and a place like no other! This meticulously designed home was featured in Florida Design magazine and was recently remodeled with impeccable taste.
♦
7 Bed | 7 Bath | 2 Half Bath | $13,750,000 | Nikki Gwaltney and Janelle File
This exceptional Georgian estate sited on over an acre in Corona del Mar offers unparalleled privacy and panoramic views of the Pacific Ocean, Newport Harbor, Catalina Island, and city lights. Unassuming and privatized from the street, one will be amazed at what lies beyond the gated entrance. Immaculate millwork and fine craftsmanship lend a timeless elegance to the interior, from the coffered ceilings defined by dentil molding to the wainscoting and decorative trim. Take advantage of breathtaking views and a picturesque veranda with a soothing fountain.
Interested in learning more about how I can help you navigate this real estate market in your area or in other markets across the country?
Let’s set up a time to connect. Call me any time at 510-406-4836
Don’t hesitate to reach out if you have any other questions.
Best,
Joujou
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Chawla Real Estate Team | DRE# 00890002M: 510.406.4836joujou.chawla@