Asked at the end of the virtual chamber lunch how much damage the COVID-19 pandemic did to certain sectors, Beardall said it was sector-dependent, but he applauded government rescue actions, specifically the Paycheck Protection Program (PPP) and getting help to industries that needed it. He sees rebounds occurring in industries like travel.
“I think certain industries are gonna rebound quicker than others,” he said, but for others it will depend on whether they can find enough workers to serve customer demand. “It will be all industry-specific, but … I’m overall very bullish on our economy. You just look at the amount of capital that we have here — I’ve said before to this group and I’ll say it again — when you have the combination of human capital with the hard dollars capital here, great things are gonna happen.”
Beardall also was asked how long he anticipated the area’s hot housing market to last.
While no one can predict the future, he sees inflationary pressures influencing people’s desire to be in hard assets like real estate, and there’s limited housing supply for the demand fueled by the area’s job strength.
“People want to live in this area because we have great opportunities in our employment base,” he said. Real estate is cyclical, “but I believe over the long-term, I continue to be bullish on real estate in the Eastside.”
Beardall said he’s often asked about what’s different about the mortgage market today versus before the Great Recession in 2008.
“One of the key points is you have people that are making better loans and you have more qualified buyers, and those buyers are putting more equity down,” he said.
He pointed to the U.S. mortgage market measuring $2.5 trillion in 2005, dipping to $1.3 trillion to $1.7 trillion after the recession. In 2019, total mortgage volume was $2.4 trillion. And last year, during the pandemic, mortgage originations totaled $4 trillion.
“It’s just stunning,” Beardall said, “and through one quarter of this year, we are on pace for $5 trillion of mortgage origination.”
Homeowners are taking advantage of the equity they’ve built up in their homes, taking advantage of low interest rates, pulling out that equity, and have money to spend on goods and services, he said.
Subprime and Alt-A loans have essentially gone away, “which is a really, really good thing that leads me to believe that the housing market is not overinflated with people getting into homes that they truly can’t afford,” he said. “People that are buying homes today typically are very well-qualified from a credit perspective, and they’re putting a whole lot more equity in it.”
It’s an example of where regulation has worked, he said of rules implemented after the financial crisis.
One uncertainty remains inflation, Beardall said.
“I think that’s really the million-dollar question is: Will inflation that we’re all experiencing today be transitory, will it be short-lived, or is this a start of longer-term inflation that’s going to drive interest rates up?”
He asked rhetorically if the Fed would be able to control inflation or is already behind in terms of moving interest rates to control inflation.
“Nobody knows the answer to that, even the Fed itself,” Beardall said.
He also wonders about the federal budget and the imbalance between spending and revenues.
“The U.S. government continues to borrow extensively,” he said. “From my perspective, I don’t think that we can maintain this pace of outspending” versus revenues.
“Look at what’s happened to our federal debt since 1994,” he said. “We went from essentially less than a trillion dollars in federal debt to now approaching $30 trillion in federal debt. To me, that is stunning.”
Consider the interest rate risk, Beardall said, noting that every 1 percent change in short-term interest rates translates to $300 billion per year of incremental spending for the federal government in interest costs.
In his industry, Beardall cited the improved strength of banks today, noting problem loans and charge-offs are decreasing, and loan-loss reserves are higher. Banks also have seen a surge of deposits, which banks use to fund loans, but the loan-to-deposit ratio has fallen in relation to the deposits, “so there is great demand for creditworthy borrowers and creditworthy projects and businesses,” he said.