And then there’s the ARMs snapshot: “They also have a huge exposure to ARMs,” Sykes said. “They have 40% of their mortgage business in 7/1 ARMs and 25% in 5/1 ARMs.”
Overall, the effect of inflation is part of the mix too as many secure their funds, Sykes noted. “As things have gotten more expensive as people have had to dive into their savings, of course they’re withdrawing that cash they had hoarded the last two years. When credit card payments were strong and everyone had the least amount of credit card debt in history now we have the most amount of credit card debt. How quickly that changed in one year.”
Others have noted the different nuances in the banking turmoil in separate interviews with MPA. Kimberly Jay, a broker at Compass, noted the differences among various US markets in positing that the impact won’t be a wholesale one. “Real estate is local,” she said during a telephone interview. “Not all markets form the same way. Manhattan market isn’t the same as the suburban market, it’s not the same as Florida, LA, Kansas City, etc. Let’s start off with that.”
Lee Smith, senior executive vice president and president of mortgage at FlagStar Bank, made similar arguments. “The Fed obviously believes what is happening in the banking industry is contained, it’s idiosyncratic, and not systemic,” he told MPA. “So given the actions it’s currently taking, they don’t believe it’s going to have a contagion effect. Having said that, I think they are watching what has happened and I do think they’re going to slow the rate of their increases down versus what they were doing in 2021.”
He suggested he’d wait until the data emerge before coming to further conclusions: “You’re going to see unemployment increase because there are a lot of companies in ’23 that focused on cost structures, and at some point that’s going to have an impact. And with everything that happened in the banking industry, it’s probably going to have an impact on credit availability at some point. I think the Fed is also banking on that having a positive impact on inflation as well as the actions they’re taking.”