These are strange days for local bankers.
Indeed, home sales in Seattle and elsewhere have plummeted under high interest rates. Prices are finally trending downwardThe once lucrative refinancing business is in a coma.
Brent Viadal, CEO of Seattle-based WaFd (formerly Washington Federal) and a veteran observer of the Seattle housing market, said he was a “crypto billionaire” who had “purchased a beautiful home by Lake Washington.” ’ even states that they have all but disappeared.
However, despite the economic slowdown, some of the regional banks serving the Seattle area are doing well.
WaFd, which operates in Washington and seven other western states, posted its best annual results in its 105-year history, breaking records on everything from profits to loans. Several local competitors have also reported good results, including Seattle-based HomeStreet and Tacoma-based Columbia Bank.
This partly reflects the individual strategies of banks during several years of pandemic-related turmoil. But it also shows how much the housing business has changed since the Great Recession, when many banks were wiped out by bad debt, and how these changes will likely change even after the pandemic subsides and the Seattle-area housing market recovers. Indicates whether to continue.
The anti-grain performance of some banks is due to the recent rise in interest rates, which has allowed banks to claim more loans. Banks themselves are also paying higher interest rates on money they lend, but “rates aren’t rising as fast, so margins are widening,” he says.
Many banks have also benefited from implementing pandemic-related relief programs. For example, some community and regional banks have actually grown their lending business by offering paycheck protection program loans to small businesses despite economic uncertainty. Half of WaFd’s 10,000 of his PPP loans went to non-customers, some of whom subsequently became WaFd’s customers.
Overall, Washington State’s banking sector’s total business revenue actually increased by nearly 2% in the first two years of the pandemic, data from the State Department of Revenue shows. Overall business revenue in the same period he increased 5.4% to $266 billion.
But bankers are also benefiting from deeper changes in how homes are financed.
Seattle-area housing, for example, has been booming for much of the past decade, but many local banks are staying away from consumer mortgages for several reasons.
First, the mortgage business is very volatile. When interest rates are low, “there’s a lot of refinancing going on, and home sales are usually strong, so they’re making a lot of money,” says Washington, Oregon, California, and Hawaii. But when interest rates rise, mortgages and refinancing will be “reduced by more than 50%,” Mason said.
Reduced loan amounts can lead to reduced profits and dissatisfied shareholders. WaFd, Columbia, and HomeStreet are all publicly traded companies and have recently experienced significant share price volatility.
Second, mortgage margins are being squeezed. One reason for this is that banking regulations since 2008 have increased lending costs. Smaller banks are also facing increased competition from low-cost nonbank lenders, according to the federal government. data.
As a result, banks now often earn less on 30-year fixed-rate mortgages than on other types of loans, especially the short-term, variable-rate commercial loans preferred by many businesses, which are not available in many rural areas. and used in the region. Banks now take precedence.
At WaFd, mortgages now account for less than 35% of banks’ total loan portfolios, up from nearly 50% in 2019.
At HomeStreet, mortgage-related business accounts for just 7% of revenue, down from about 35% in 2018, Mason said. He expects banks to pursue more commercial loans in the near future, or at least “until mortgage rates normalize and house prices ease,” he added.
These changes are part of broader changes in banking.
Smaller community and regional banks in particular face increasing pressure from larger banks with the resources to reduce compliance costs, for example, by automating loan processing.
Glenn Simechek, president and CEO of the Washington Bankers Association, said the pressure has pushed some smaller banks into niche lending, such as apartment building and banking services for wealthy customers. He said that he is now focusing on
Meanwhile, pressures to control costs, combined with labor shortages due to the lingering pandemic and the popularity of online banking, are accelerating the trend toward branch closures. (According to one survey, about 45% of customers prefer mobile his banking. new industry research.)
Since 2017, Seattle alone has lost at least 87 locations, or nearly 10%, according to the company. National Community Reinvestment Coalition.
These changes don’t mean Seattle-area banks are abandoning the housing market. However, more and more people are turning their attention to the commercial aspect of housing. Since 2019, both WaFd and HomeStreet have nearly doubled their lending to apartment projects, which can be more profitable than single-family homes, especially in markets like Seattle where rents are rising. .
Multi-family loans “were one of the safest loans ever,” says HomeStreet’s Mason.
Renting an apartment is not risk free. During the pandemic, some investors were skeptical of an apartment project in downtown Seattle due to uncertainty over remote work and security concerns. Beardall recalls investors asking about downtown projects.
But Beardall expects the downtown Seattle housing market to eventually recover, and he and other bankers say they’re equally bullish on the rural housing market’s recovery.
However, these predictions come with a number of caveats.
Recovery may take some time. The Seattle area housing market has been fueled over the years by very strong local employment, especially by tech companies.This suggests a prolonged recovery in recent cases Job slowdown announced by some tech companies Getting worse.
In fact, if employment slows too much, some bankers say the local economy will probably slip into a mild recession, perhaps as early as late 2023. Biadal puts the chance of a recession at 90%.
Future homebuyers also shouldn’t expect ultra-low interest rates from the early pandemic. Mason believes it’s too early to know “where mortgage rates will stabilize.” Beardall believes the “new normal” rate for mortgages could be around 6%, which he believes is likely to deter some buyers.
And whenever it comes, Seattle’s housing recovery is likely to weaken in a market segment that lagged before interest rates rose.
Single-family home sales and construction, for example, were already facing constraints that limited housing supply. They include zoning laws, skyrocketing land costs, and stricter financing requirements enacted after the Great Recession.
Some bankers expect these constraints to worsen even after interest rates fall. That means even fewer single-family homes for Seattle-area buyers, likely signifying a housing recovery, and more incentive for buyers, developers, and bankers to consider other types of housing. .
Putting it all together, going forward, new residential units in the Seattle area will be “disproportionately weighted for multifamily,” Beardall says. We know that multi-family homes are “more doors, denser” and more profitable than single-family homes.
There is still demand for single-family homes in and around Seattle. But without a dramatic collapse in house prices— King County single-family home median sold for $875,000 in September — Given that interest rates are likely to rise, demand is likely to be more concentrated among high-end buyers who were already beginning to dominate the single-family home market before the slowdown.
Prior to the recent decline in tech stocks, tech workers regularly used stock options to make downpayments.
Other big consumers may not come back.
Beardall doesn’t expect crypto billionaires to flood the Seattle-area housing market again.
“When Matt Damon started doing Super Bowl commercials, I knew it was at its peak,” says Biadal.