Norada Real Estate Investments

Archives for November 2023

2023 Housing Market Predicted to Have Fewest Sales Since 2008

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2023 Housing Market Predicted to Have Fewest Sales Since 2008

The housing market is experiencing a significant slowdown, with economists predicting that 2023 will be the slowest year for home sales since the 2008 housing bubble burst. According to a recent report by Fox Business, the housing market is facing several challenges, including persistently high mortgage rates and low inventory, which are discouraging potential buyers.

Redfin, a leading real estate brokerage, has estimated that there will be only around 4.1 million sales of existing homes in the United States by the end of 2023. One of the major factors contributing to this decline is the soaring mortgage rates, which currently stand at a staggering 7.63%. These high rates are dissuading many potential homebuyers from entering the market, making 2023 one of the toughest years for real estate sales.

According to Redfin's economic research lead, Chen Zhao, “Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low.

The current mortgage rates are the highest they've been in over two decades, which is causing a growing number of buyers to hesitate about entering the market. Recent data from the Mortgage Bankers Association reveals that mortgage applications have dropped to their lowest level since 1995, further confirming the challenges the housing market is facing.

A Stark Comparison to 2008

The situation in 2023 draws a striking comparison to the housing market crash in 2008, which was triggered by a combination of factors, including the subprime mortgage crisis, high debt levels, and a lack of financial regulation. As reported by Fox Business, this crash led to a severe economic recession that affected millions of Americans, with many finding themselves in homes worth less than their mortgages.

However, one notable difference is that during the Great Recession, plummeting home prices created opportunities for first-time homebuyers to enter the market and purchase starter homes. In contrast, the current high mortgage rates are discouraging potential buyers, leading to a stagnant market and further worsening inventory issues.

Impact on Homebuyer Demand

Redfin's Homebuyer Demand Index, which measures early-stage demand indicators such as home tours, has fallen to its lowest level in a year. This decline reflects the reduced enthusiasm among homebuyers, who are waiting for better market conditions.

Furthermore, during the four weeks ending on October 15, the housing market saw a nearly 14% decrease in available homes, as homeowners opted to hold onto their lower borrowing rates. While there has been a slight increase in new listings this fall, potential buyers may find better opportunities in the new construction market.

New Construction Offers Hope

Amid the challenging conditions in the existing home market, new construction is emerging as a more attractive option for homebuyers. According to Redfin, sales of newly built homes are holding up better than existing home sales. This is partly because builders are not constrained by low mortgage rates, and they are often more motivated than homeowners to close a deal.

In the United States, sales of new construction homes increased by 1.5% year over year last month. This comes as prices for new construction homes dropped by approximately 4%. These statistics indicate that buyers might find more favorable conditions in the new construction sector, where builders are adapting to the changing market dynamics.

In summary, the 2023 housing market is facing unprecedented challenges, with high mortgage rates and low inventory discouraging potential homebuyers. These conditions have led economists to project that 2023 will witness the fewest home sales since the 2008 housing market crash. This situation is a stark contrast to the opportunities that emerged during the Great Recession, as today's high rates are keeping more homebuyers on the sidelines.

However, amidst these challenges, new construction homes are offering hope to buyers, with sales in this sector holding up better and prices dropping. As we navigate these uncertain times, potential homebuyers may find new opportunities in the evolving real estate market.

Home Prices Grow by 6.6% Despite High Mortgage Rates in 2023

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Home Prices Surge by 6.6% Despite High Mortgage Rates in 2023

In a surprising turn of events, housing prices have experienced a remarkable surge of 6.6% since January, defying the odds posed by escalating mortgage rates. This upward trajectory, highlighted by the S&P CoreLogic Case-Shiller Index, reveals a robust 3.9% increase in September compared to the same month last year.

As prospective homebuyers grapple with the challenges of soaring mortgage rates, the real estate landscape continues to evolve. The 30-year fixed mortgage, a key indicator, has exhibited fluctuations, standing at 7.32% on Nov. 27, a stark contrast to the 6.65% recorded for the corresponding week last year. This unprecedented increase, doubling rates from two years ago, raises concerns about the sustainability of the current housing market dynamics.

Dr. Selma Hepp, Chief Economist at CoreLogic, attributes the accelerated annual home price growth to pent-up demand, exacerbated by minimal housing inventories. However, she cautions that the persistent surge in mortgage rates may exert pressure on home prices, potentially tempering the rate of growth in the coming months.

2024 Housing Market Predictions: Modest Growth Amid Mortgage Rate Constraints

Industry experts foresee a modest rise in house prices in 2024, foreseeing a tug-of-war between the demand-supply equilibrium and the constraints imposed by high mortgage rates. The housing market, which transitioned from a seller's market in 2021 and early 2022 to a more balanced state, anticipates a continuation of sluggish house price appreciation in the upcoming year.

The confluence of soaring prices, limited inventory influenced by homeowners holding onto favorable mortgage rates secured in previous years, and the surge in mortgage rates has left many potential homebuyers on the sidelines.

Balancing Act: Tight Inventory, Rising Prices, and Future Affordability

Throughout the year, rising home prices have been propelled by tight inventory, maintaining competitiveness despite a dip in demand. Looking ahead to 2024, the anticipation of easing mortgage rates brings a glimmer of hope for prospective buyers, potentially alleviating the financial burden associated with home purchases.

According to Dr. Selma Hepp, “Despite the dramatic increase in the cost of homeownership, home prices have risen 6.6% so far this year — meaningfully beyond expectations given the rise in borrowing costs.”

As the housing supply gradually picks up, the prevailing tight inventory conditions are expected to maintain upward pressure on home prices. However, the prospect of falling mortgage rates hints at a more affordable future for those looking to step into the real estate market.

Bank of America Fined $12 Million for Misleading Mortgage Data

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Bank of America Fined $12 Million for Misleading Mortgage Data

The Consumer Financial Protection Bureau (CFPB) has imposed a hefty fine of $12 million on Bank of America for misleading mortgage lending data reported to the federal government. The fine comes as a consequence of the bank's violation of the 1975 Home Mortgage Disclosure Act (HMDA), a federal law that mandates accurate reporting of demographic data about mortgage applications to financial regulators.

False Reporting and Regulatory Violations

According to the CFPB consent order, Bank of America engaged in the unlawful practice of falsely reporting demographic data, including race, ethnicity, and sex, for mortgage applications between 2016 and 2021. The violations initially surfaced in 2020 when the bank identified numerous loan officers who failed to collect this crucial information. Instead, they falsely claimed that applicants declined to provide such details. This breach of the HMDA exposes potentially discriminatory lending practices.

Delayed Action and Monitoring Shortcomings

The violations, dating back to 2013 for phone-based loan applications, continued for years without appropriate action from Bank of America. The CFPB found that the bank failed to monitor phone calls for its distributed loan officers until 2021, allowing the misconduct to persist. This negligence occurred despite the Biden administration's heightened focus on addressing racial discrimination in housing and mortgage lending.

Bill Halldin, a representative for the bank, disputed the timeline but acknowledged the violations spanned three months. He stated that Bank of America collected demographic data accurately in more than 99% of applications during the reviewed years. However, some officers reported a lower rate of applicants declining to disclose their race than industry averages.

Previous Scrutiny and Ongoing Reforms

This isn't the first time Bank of America has faced CFPB penalties. In July, the bank was fined $150 million for alleged misconduct, including charging customers multiple junk fees. The latest $12 million fine will be directed to the CFPB's victims' relief fund.

Despite the controversy, Bank of America remains one of the largest mortgage lenders in the country, having funded $53.7 billion in first mortgage loans in 2021 through its digital application service. The bank, with over 4,500 loan officers, processed an average of over 300,000 mortgage loan applications annually from January 2016 to the present day, as reported by the CFPB.

Bank's Response and Ongoing Compliance Efforts

In response to the fine, Bank of America maintained that it properly collected demographic data in the majority of applications and noted improvements in monitoring and training in 2020 and 2021. The bank clarified that the data collection issue had no impact on the outcome of applications.

CFPB Director Rohit Chopra affirmed the regulatory commitment, stating, “We will be taking additional steps to ensure that Bank of America stops breaking the law.”

Should Fed Raise Interest Rates in December 2023?

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Should the Fed Raise Interest Rates in December 2023?

The Federal Reserve, or the Fed, is the central bank of the United States. It has the power to influence the economy by setting the target range for the federal funds rate, which is the interest rate that banks charge each other for overnight loans. The Fed also controls the supply of money in the economy by buying and selling government securities, such as Treasury bonds.

Inflation Concerns

However, as the economy has rebounded from the pandemic, inflation has also risen sharply. The Consumer Price Index (CPI), which measures the changes in the prices of a basket of goods and services, increased by 6.2% in October 2023 compared to a year ago. This is the highest annual inflation rate since November 1990. The Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, rose by 4.9% in September 2023 compared to a year ago. This is well above the Fed's target of 2%.

The main drivers of inflation are supply chain disruptions, labor shortages, higher energy costs, and strong consumer demand. Some of these factors are expected to be transitory, meaning that they will fade over time as the economy adjusts to the post-pandemic environment. However, some of these factors may persist or worsen, leading to more persistent inflation.

The Fed's Response

The Fed has acknowledged that inflation is higher than expected and that it poses a risk to its goals. The Fed has also announced that it will start tapering its asset purchases in November 2023, reducing them by $15 billion per month until they end in mid-2024. This is a sign that the Fed is preparing to tighten its monetary policy stance and eventually raise interest rates.

Should Fed Raise Interest Rates in December 2023?

The answer is: it depends.

It depends on how inflation evolves in the coming months and how it affects the public's expectations of future inflation. If inflation remains high or accelerates further, and if people start to expect higher inflation in the long run, then the Fed may have to raise interest rates sooner and faster than anticipated. This would help to anchor inflation expectations and prevent inflation from becoming unmoored.

However, if inflation moderates or decelerates, and if people continue to expect low inflation in the long run, then the Fed may have more time and flexibility to raise interest rates gradually and cautiously. This would avoid choking off the economic recovery and hurting vulnerable groups such as low-income workers and borrowers.

Fed's Projections

The Fed's projections, released in September 2023, show that most Fed officials expect to raise interest rates once in 2023, three times in 2024, and three times in 2025. This would bring the federal funds rate to 1.8% by the end of 2025, still below its pre-pandemic level of 1.75%. However, these projections are based on assumptions and uncertainties that may change over time.

Market Expectations

The market's expectations, as reflected in futures contracts, are more hawkish than the Fed's projections. The market expects the Fed to raise interest rates twice in 2023, four times in 2024, and four times in 2025. This would bring the federal funds rate to 2.5% by the end of 2025, above its pre-pandemic level.

The gap between the Fed's and the market's expectations creates uncertainty and volatility for investors and businesses. It also creates communication challenges for the Fed, which has to balance clarity and flexibility in conveying its policy intentions.

Upcoming FOMC Meeting

The next meeting of the Federal Open Market Committee (FOMC), which sets the monetary policy of the Fed, will take place on December 14-15, 2023. The FOMC will review the latest economic data and update its projections and guidance. The FOMC will also announce its decision on whether to raise interest rates or keep them unchanged.

The Fed's main goals are to promote maximum employment, stable prices, and moderate long-term interest rates. To achieve these goals, the Fed adjusts the federal funds rate in response to changes in economic conditions and inflation expectations. A higher federal funds rate makes borrowing more expensive and reduces the demand for goods and services. A lower federal funds rate makes borrowing cheaper and stimulates the demand for goods and services.

Personal Opinion on the Question – Should the Fed Raise Interest Rates in December 2023?

My opinion is: no.

I think that raising interest rates again in December 2023 would be not the best decision given the looming recession concerns. The current inflation is largely driven by temporary factors that will subside over time. I think that the economy is still recovering from the pandemic and that some sectors and groups are still struggling.

I think that the Fed should wait for more evidence of sustained inflation and broad-based growth before tightening its policy. I think that the Fed should maintain its credibility and flexibility by following the data and not the market.

In response to rising inflation concerns, the Federal Reserve raised interest rates, but now faces the challenge of navigating a potential “hard landing.” While inflation is expected to ease, the Fed must decide whether to pause or reduce rates.

I think the Fed should maintain a cautious, data-driven approach to ensure economic stability and avert a recession. Flexibility in response to evolving conditions remains crucial.

Of course, I could be wrong. And the Fed may have a different view. And the situation may change. And the Fed may change its mind.

That's why we should pay attention to what the Fed says and does in the coming weeks and months.

And that's why we should keep asking: should the Fed raise interest rates?

How 8% Mortgage Rates are Impacting the US Housing Market in 2023

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How 8% Mortgage Rates are Impacting the US Housing Market in 2023

The housing market in 2023 is facing a perfect storm of challenges that is sending shockwaves throughout the industry. Housing prices have been soaring, supply is painfully tight, and to add to the chaos, the 30-year fixed mortgage rate has surged to a staggering 8%. According to a report by CNBC, this rate is the highest in decades, and it's causing distress among both buyers and sellers.

During the first two years of the pandemic, the Federal Reserve kept its benchmark rate at zero and poured money into mortgage-backed securities. This resulted in record-low mortgage rates for a sustained period, driving a buying frenzy and causing home prices to skyrocket by 40% from pre-pandemic levels. However, as inflation surged, the Fed raised interest rates, making the housing market even more expensive.

What makes the current situation unique is the severe lack of supply. Homebuilders, still recovering from the Great Recession of 2008, have struggled to meet the demand, and this imbalance in supply and demand is exacerbating the challenges posed by high mortgage rates.

Who's Suffering in this Housing Market?

Would-be sellers are caught in a dilemma. They are hesitant to give up their existing 3% mortgage rates for new purchases at the 8% rate, leading to a standstill in the housing market. Matthew Graham, the Chief Operating Officer at Mortgage News Daily, described the situation as “worse than the great financial crisis in terms of volume and activity.”

Sales of previously owned homes in September dropped to the slowest pace since October 2010, as reported by the National Association of Realtors. This downturn is unprecedented in recent history. Unlike the foreclosure crisis era, today's housing market is marked by extremely low foreclosures and high home equity among existing homeowners. Additionally, many homeowners refinanced at record-low interest rates between 2020 and 2022, making their housing costs relatively affordable.

Potential buyers are equally affected. Anxious about the market's uncertainty, many are adopting a wait-and-see approach, further contributing to the market's stagnation.

Projections for Housing Prices

While the current situation is bleak, there is some hope for specific markets with faster job growth and affordable prices. Markets in Florida, such as Tampa, Jacksonville, and Orlando, as well as Houston, Texas, and Memphis, Tennessee, may experience an upswing in sales. Notably, large production builders like Lennar and D.R. Horton are helping buyers by offering below-market-rate loans, a practice not commonly seen in previous housing cycles.

The Housing Supply Challenge

Although construction of single-family homes is slowly increasing, it still lags far behind demand. The builder sentiment has taken a hit due to higher rates, but the new home market remains more active than the market for existing homes.

In some good news for renters, apartment rents are cooling off due to a surge in new supply. This gives renters less incentive to jump into buying, although demand for rentals is on the rise.

The Conundrum for Home Buyers

For those looking to upgrade to a larger home or downsize to a smaller one, the situation is challenging. Prices continue to rise due to the supply and demand imbalance, but sellers are becoming more flexible. Buyers face a decision: purchase now at higher rates and hope for a price reduction or wait for rates to drop, potentially leading to bidding wars in the future.

In summary, the 2023 housing market is a battleground of high mortgage rates, limited supply, and hesitant buyers and sellers. While some markets show promise, the overall picture is one of uncertainty and anxiety. The housing market is experiencing an unprecedented set of challenges that will likely shape its future in ways we can't yet predict.

Houston’s Homes Sales Show Resilience with Minor Dip in October 2023

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Houston's Homes Sales Show Resilience with Minor Dip in October 2023

Despite facing its 19th consecutive month of year-over-year declines in home sales, Houston's housing market exhibited resilience in October 2023, marking the smallest dip of the year. The Houston Association of Realtors reported that single-family home sales, totaling 6,377, experienced a modest 3.4% decrease from the previous October, surpassing the year's earlier record drop in August.

The market witnessed varying trends in different pricing segments. Homes priced between $150,000 and $999,999 saw declines ranging from 4.3% to 8.5%, while the luxury segment, homes priced at or above $1 million, recorded a remarkable 21.3% surge in sales. Interestingly, the lower-priced segments below $150,000 also saw sales increase between 3.1% and 12.7%, showcasing a diverse market response.

Despite the dip in sales, the prices of single-family homes remained relatively stable. The average price edged up by a marginal 0.4% to $403,556, while the median price dipped by 0.9% to $327,000. Compared to pre-pandemic levels in October 2019, these figures still reflect a significant increase of 35.3% and 36.3%, respectively.

Housing Inventory and Future Outlook

The decline in sales contributed to an increase in inventory, reaching a 3.6-month supply, a level last observed in November 2019. Nationally, the inventory stands at a 3.4-month supply, indicating a balanced market. Looking ahead, single-family pending sales showed promise with an 11% increase, and total active listings rose by 12.5% compared to the previous year.

Townhouse and Condominium Market

The townhouse and condominium market mirrored the trends of single-family homes. Experiencing its 17th straight month of decreases, sales fell by 16.4%. The inventory reached a 3.7-month supply, the highest since November 2020. Average prices inched up by 1.2% to $272,597, and the median price increased by 6.6% to $239,900.

Rental Market and Economic Factors

Despite the slowdown in home sales, the rental market for single-family homes and townhomes/condominiums remained robust. Analysts suggest that the highest mortgage rates in two decades might be a key factor influencing consumers to delay home purchases.

According to HAR Chair Cathy Treviño with LPT Realty, “The Houston real estate market had an encore performance of slower home sales and solid rental activity in October, and we can probably expect those trends to prevail for the rest of the year.

While the housing market in Houston faced challenges with declining sales, the minor dip in October 2023 and the positive indicators in pending sales and active listings hint at a potential turnaround. As the market navigates economic factors like mortgage rates, the coming months will be crucial in determining the trajectory of Houston's real estate landscape.

Mortgage Demand Climbs to Five-Week High As Interest Rates Drop

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Mortgage Demand Climbs to Five-Week High As Interest Rates Drop

Mortgage demand experienced a notable surge, reaching the highest level in five weeks, following a decline in interest rates. The Mortgage Bankers Association's seasonally adjusted index reported a 2.8% increase in demand, marking the second consecutive week of gains.

After a significant drop in the preceding week, the average contract interest rate for 30-year fixed-rate mortgages remained steady at 7.61%, with conforming loan balances of $726,200 or less. Points decreased slightly to 0.67 from 0.69, including the origination fee, for loans with a 20% down payment.

Applications for refinancing a home loan saw a 2% increase for the week, standing 7% higher than the same week last year. However, the motivation for refinancing might be limited, as current mortgage rates do not differ significantly from those in November of the previous year when many borrowers secured historically low rates during the early stages of the COVID-19 pandemic.

On the other hand, applications for a mortgage to purchase a home experienced a 3% uptick from the previous week. Despite this increase, they remained 12% lower than the same week a year ago. Lower interest rates provided some relief, but challenges persist due to continually rising home prices and a limited housing supply.

Challenges for Homebuyers

According to Joel Kan, MBA's Vice President and Deputy Chief Economist, both purchase and refinance applications reached their highest weekly pace in five weeks but still linger at notably low levels. The current mortgage rates, although slightly down, pose challenges for prospective homebuyers and existing homeowners.

While mortgage rates moved lower in the reported week, triggered by a bond market rally following a lower-than-expected monthly inflation report, the impact on overall affordability remains a concern.

The recent uptick in mortgage demand reflects a response to lower interest rates, yet challenges persist in the housing market. Affordability concerns, coupled with rising home prices and limited inventory, continue to shape the landscape for both potential homebuyers and those looking to refinance.

Mortgage Rates Take a Dip for the Third Consecutive Week

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Mortgage Rates Take a Dip for the Third Consecutive Week

The mortgage market is witnessing a significant shift as rates continue their descent for the third straight week, according to data released by Freddie Mac. The average rate on the benchmark 30-year fixed mortgage dropped to 7.44%, down from 7.5% the previous week. While this marks a notable decline, it remains higher than the 6.61% average recorded during the same week last year.

With the average rate on the 15-year note also decreasing to 6.76%, down from 6.81% the previous week, the market is experiencing a notable shift compared to a year ago when the rate stood at 6.38%.

Sam Khater, Chief Economist at Freddie Mac, attributes the continued decline in mortgage rates to receding inflationary pressures. For the third straight week, mortgage rates trended down, as new data indicates that inflationary pressures are receding,” stated Khater. “The combination of continued economic strength, lower inflation, and lower mortgage rates should likely bring more potential homebuyers into the market.”

The Mortgage Bankers Association reported a 2.8% increase in mortgage applications last week, marking the second consecutive week of gains and the highest level in five weeks. Despite this positive trend, application volume remains 12% lower than the same period last year. Demand for refinancing also saw a modest increase, rising 2% from the previous week, and experiencing a 7% surge compared to the same time last year.

Lawrence Yun, Chief Economist at the National Association of Realtors, weighed in on the situation, stating, “Mortgage rates are plunging with the news of inflation calming.” Yun expressed confidence that interest rate hikes are likely over, and the Federal Reserve may consider cutting interest rates seriously. He added, “Mortgage rates look to head towards 7% in a few months and into the 6% range by the spring of 2024.”

The mortgage market is undergoing a transformative period with rates experiencing a notable decline. As economists predict a continuing downward trend, potential homebuyers may find this to be an opportune moment to enter the market. The interplay of economic strength, inflation dynamics, and mortgage rates will undoubtedly shape the real estate landscape in the coming months.

California Housing Affordability Drops in the Third Quarter 2023

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California Housing Affordability Drops in the Third Quarter 2023

The California housing market is facing a significant challenge as housing affordability hits a 16-year low in the third quarter of 2023. This decline is attributed to soaring interest rates, reaching a two-decade high, and a continuous rise in home prices, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

Statistics and Figures:

In Q3 2023, only 15 percent of California households could afford the median-priced home of $843,600, down from 16 percent in the previous quarter and 18 percent a year ago. To afford this home, a minimum annual income of $221,200 was required, with monthly payments of $5,530 on a 30-year fixed-rate mortgage at a 7.14 percent interest rate.

For condos and townhomes with a median price of $650,000, 23 percent of home buyers could afford them. The minimum annual income needed for this purchase was $170,400, resulting in monthly payments of $4,260.

Interest Rates and Impact:

The effective interest rate surpassed 7 percent for the first time in over two decades, standing at 7.14 percent in Q3 2023. This surge in interest rates is a critical factor contributing to the decline in housing affordability.

However, there is optimism that interest rates may decrease if there is a further economic slowdown, which could potentially alleviate pressure on both the supply and demand sides of the housing market, leading to improved affordability in the upcoming quarters.

Regional Affordability:

When examining housing affordability on a regional level:

  • 36 counties experienced a decline in affordability compared to the previous quarter, with only 5 counties showing improvement.
  • On a year-over-year basis, 6 counties witnessed improved affordability, while 42 counties recorded a decline.

County-specific Insights:

Notable findings from specific counties include:

  • Lassen (58 percent) remained the most affordable county in California, requiring a minimum qualifying income of $55,600 to purchase a median-priced home.
  • Mono (5 percent), Monterey (9 percent), San Luis Obispo (10 percent), and Santa Barbara (10 percent) were the least affordable counties, each demanding a minimum income of at least $226,800 to buy a median-priced home.
  • San Mateo topped the list with the highest minimum qualifying income of $516,000, followed by Santa Clara ($484,800) and Marin ($416,400).

Year-over-Year Affordability Changes:

Notable year-over-year changes include:

  • Kings experienced the most significant drop in affordability, falling 13 points from Q3 2022 to Q3 2023.
  • Amador registered the second-largest decline, moving eight points below the previous year.
  • Kern, Sacramento, and Stanislaus each dropped six points from a year ago.

Despite higher household incomes, elevated home prices, and increased mortgage rates remain primary factors contributing to the challenges in housing affordability across most counties in California.

For a visual representation of the data, refer to the infographic provided by C.A.R.

Fifth Bank Failure in 2023: Closure of Citizens Bank

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Fifth Bank Failure in 2023: Closure of Citizens Bank

If you are a customer of Citizens Bank in Sac City, Iowa, you may have been surprised to find out that your bank was closed by the regulators on November 3, 2023. This marked the fifth bank failure in the US this year and the first one in Iowa since 2011.

Citizens Bank was established in 1929 and had two branches in Sac City, a small town of about 2,000 people. According to the FDIC (Federal Deposit Insurance Corporation), the bank had about $66 million in total assets and $59 million in total deposits as of September 2023. The bank was mainly focused on agricultural lending, but also had significant exposure to commercial trucking loans.

Cause of Citizens Bank Failure

During a joint examination by the Iowa Division of Banking and the FDIC, examiners discovered that the bank had incurred heavy losses on some of its out-of-territory and out-of-state loans to one industry. The regulators did not specify which industry was involved, but some sources suggest that it was related to oil and gas exploration. The bank had not properly reported these losses to its management or shareholders, leading to insolvency.

Resolution and Impact on Customers

The FDIC was appointed as the receiver of the bank and entered into a purchase and assumption agreement with Iowa Trust & Savings Bank, based in Emmetsburg. Iowa Trust & Savings Bank agreed to assume all deposits of Citizens Bank, including personal, commercial, and government accounts. The two branches of Citizens Bank reopened as branches of Iowa Trust & Savings Bank on November 6. Customers can access their money through existing checks, debit cards, and online banking services. The FDIC assured that no depositor lost any money as a result of the bank failure.

The FDIC provided a toll-free number (1-800-523-8089) and a website (FDIC Citizens Bank Closure) for customers to get more information about the bank closure and their accounts. Customers are advised to review their deposit insurance coverage using the online Electronic Deposit Insurance Estimator (EDIE) tool to calculate their coverage.

Financial Implications and FDIC's Role

The FDIC reported that as of June 30, 2023, there were some banks on its “problem list,” indicating banks at risk of failure. The estimated cost of resolving Citizens Bank is $14.8 million, to be paid by the Deposit Insurance Fund (DIF). The DIF, with a balance of $117.9 billion as of June 30, 2023, represents 1.35% of insured deposits. The FDIC aims to maintain the fund at a minimum level of 1.35% and can adjust premiums accordingly.

The bank failure of Citizens Bank is not expected to have a significant impact on the overall banking system or the economy of Iowa. However, it is a sad event for the community of Sac City and the employees and shareholders of Citizens Bank. We hope that this information has helped you understand what happened to Citizens Bank and what you can do if you are affected by it.

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