‘All strapped in’: Luxury Clients Face Whiplash As Banking Fallout Unfolds
In these times, double down — on your skills, on your knowledge, on you. Join us Aug. 8-10 at Inman Connect Las Vegas to lean into the shift and learn from the best. Get your ticket now for the best price.
Faced with an unraveling fallout from the failures of financial institutions, some luxury homesellers have chopped prices while buyers press pause as the crisis unfolds, real estate agents of one-percenters revealed to Inman.
In Orange County, where the median sales price of a detached home declined 7.6 percent to $1.174 million in February, at least one luxury homeseller was spooked enough to quickly accept a lower bid on the home he was selling, presumably to ensure a smooth sale before potential headwinds from the collapse of Silicon Valley Bank and Signature Bank gain force, Gio Helou of The Oppenheim Group told Inman.
In Park City, Utah, where world-class skiing draws wealthy homebuyers from across the globe, some buyers have put their search on ice as they wait out the ripple effects from the banking imbroglio, Paul Benson of the Engel & Völkers Gestalt Group said.
But as wealthy clients go from panic to cautious optimism, one tool they’ve deployed frequently is their arsenal of accountants, wealth advisors and stockbrokers to help navigate the ongoing storm, agents told Inman.
“I had a seller who accepted an offer we received for a price that he would have dismissed five days ago just because he’s worried that [Silicon Valley Bank] is a potential snowball of something greater to come down the road in a negative way,” Helou said. “I think it is anecdotal, but it does embody a larger picture. I doubt I’m the only one in this position.”
Silicon Valley Bank and Signature Bank collapsed one week ago following a run on the banks, and by the end of day Thursday, European giant Credit Suisse and the San Francisco-based First Republic had leaned on huge cash infusions from larger banks to stave off collapse. The sudden change in the global banking landscape has left luxury real estate clients holding their breath as they wait to see where the remaining chips will fall.
“We have clients that have put their decisions on hold for now while they watch for additional fallout and/or other bank losses,” Benson told Inman in an email. “However, they are still buyers, and as one buyer stated this weekend, ‘Just waiting to be safe, but still plan to buy soon.’”
Agents Inman spoke with said clients seemed somewhat reassured by the Fed, Treasury and Federal Deposit Insurance Corporation swooping in on Sunday to ensure that all depositors in SVB and Signature Bank would be repaid in full. But it was clear by Thursday as Credit Suisse received a $54 billion influx of cash from Switzerland’s central bank and several U.S. banking giants funded a $30 billion lifeline to First Republic that the market uncertainty was far from over.
“The SVB [collapse], I think it was a much bigger concern leading up to Sunday night,” Jeff Marples of Marker Luxury Properties in San Francisco told Inman. “Now it’s just a matter of, we’re all strapped into the seat and we’re in the roller coaster movements of the market for a while, and somewhere down the line it will even out.”
Panic gradually transforms to caution
The consensus among luxury agents that Inman spoke with was that their clients weren’t too keen to make any sudden moves in the wake of the last week’s events — but none seemed to be in full panic-mode either.
In San Francisco, Marples said that the main concern last week was the fear that some of the local businesses with payrolls attached to SVB wouldn’t be able to pay their employees, but once that fear was allayed on Sunday, a sense of confidence was restored.
“One of my clients who’s a wealthy woman [and savvy], she was waiting for the fallout to see how the contagion would happen on some of the tech industry,” Marples explained. “If you remember, on Friday and over the weekend, it was all a matter of paying payroll to all the tech startups and that was the scare, in my opinion. If the Fed didn’t backstop that and say deposits are guaranteed and covered, that would have been really bad.
“Once they stopped that, now it’s just a matter of … people are worried about the smaller regional banks, like First Republic.”
By Thursday evening, some of those fears had likely been assuaged, with stocks closing in the U.S on Thursday 1.8 percent higher. However, as markets opened on Friday, First Republic shares fell about 16 percent after dropping about 19 percent after market’s close on Friday, and shares of Credit Suisse also fell about 9 percent. Friday morning The Dow fell 182 points, or 0.6 percent, the S&P 500 dropped 0.1 percent, and the Nasdaq Composite fell 0.02 percent.
Still, the week’s swift action from the government showed that American banking is in a secure position, Rayni Williams of Williams and Williams Estates Group in Beverly Hills said, bolstering hers and her clients’ confidence. However, she added that the scenario has caused some of her clients to reevaluate where they want to put their future investments.
“I haven’t had any deals canceled over it, and I haven’t had anybody say ‘I’m not signing this paperwork, I need to take a beat,’” she told Inman. “I had, of course, some depositors say they were going to pull money in like banks, such as SVB and Signature Bank, and some of these smaller [banks]. Some people say ‘I think I’m going to put my money in treasury bonds.’ But other than that, nobody missed a beat.”
Looking for a silver lining
Carl Gambino who operates his Compass team across New York, Los Angeles, Miami and the Hamptons, also told Inman that the volatility clients have seen in these select banks over the last week has made his mega clients want to lean even harder into real estate as an investment.
“[The reaction] varies on the client,” Gambino said. “I’ve noticed some in the lower end are nervous. Some in the higher end are looking at it as an opportunity and wanting to put capital in a physical asset that is great for long term appreciation because it’s more secure.”
Benson said that both the group’s real estate advisors and their clients have felt the impacts of SVB’s collapse, as many personally used the bank. Over the last few days, though, Benson added that “panic” has transformed into “caution,” while everyone hopes that there may be a silver lining in the fallout, potentially with slower interest rate increases and a more balanced market on the horizon.
“The fast actions on Sunday from the Fed helped alleviate true panic and turned the mood into something in between cautious and concerned for our advisors and clients,” Benson said.
When it comes to ultra-luxury clients, Kofi Nartey of GLOBL RED in Beverly Hills noted that since many of them work with financial advisors, wealth managers, CPAs and more — all of whom Nartey is in frequent contact with — they often have their assets spread out in such a way that a somewhat isolated banking collapse, like that of SVB and Signature Bank, tends not to impact them at a high level.
“With a diverse portfolio, they’re not subject to certain swings,” he explained. “So they’re in a pretty good position.”
Ultra-luxury clients have that privilege of instant access to experts who can best instruct them how to make smart moves during market upheaval. As those clients have wondered how safe their money is, financial advisors have recommended they diversify their assets, consider short-term Treasurys and stick with established banks, according to financial advisor publication ALM ThinkAdvisor.
But when it comes to real estate activity, the banking sector’s recent instability has also made many of Nartey’s clients want to pause and “let the dust settle a little bit.”
At the entry level of the luxury market, however, Nartey said that if the Fed’s subsequent moves in response to the SVB, Signature Bank and First Republic crises leads to slower rate hikes, that could spur movement in the real estate market sooner rather than later.
“We’re entering the traditional buying season for real estate, so if that can line up with interest rates coming down, we’ll see an uptick in activity.”
Is a sharp change in seller strategy a harbinger of more?
Helou said that his seller’s move toward accepting a lower price for his home might not be an indication of a larger market trends, but those bad feelings about the market that quickly spread can indeed have a palpable, and potentially negative, wide-ranging impact.
“I see this potentially creating a sentiment of negativity in the air,” he explained. “Markets are heavily controlled by sentiments alone. And right now, this bank news, and now you have the news out of Credit Suisse and their bank, so there is a worry in the air, even regarding real estate here in Orange County. No, this isn’t doomsday. However, if I am looking to sell my house, should I hold out the storm, or do I let it go for 5 percent less than I was willing to a few days ago? So far, I’m seeing both sides of that coin.”
But anecdotes from agents in the Bay Area seemed to confirm that the bank collapses were affecting consumer sentiment significantly in the region, as they hit hard a struggling market that was on the precipice of turning around.
“Not a single buyer has expressed interest in going out,” Nina Hatvay of Compass told Bloomberg, prior to the Feds swooping in to help SVB on Sunday. “Sellers are like, ‘I better sell before it gets worse,’ and buyers are not engaging.”
Keeping an eye on market volatility
Nartey added that his clients’ biggest concern right now is that intense market volatility.
“I think the biggest concern is just an unstable market,” he said. “That’s a very generic phrase, but there are a lot of factors that contribute to the stability of the market, and interest rates [is one], Fed rates is one of them and the stock market is another — and right now, all three of them are in flux. People want to have an idea of where things are going.”
And although that market volatility is making buyers move with a bit more caution, it doesn’t mean they’re going away altogether.
“We [in real estate] always say ‘The buyers are on the sidelines,’” Nartey said. “Right now, the buyers are in the parking lot … So we don’t see them. But those of us in the industry know they’re there. They’re just waiting for the right moment.”