Published on March 18, 2021
Written by The Servion Group
The Servion Group's annual owners' meeting was held in mid-February, which is normal timing, but like so many things over the past year little else was normal about it. Mainly, the meeting was held virtually for the first time. We would like to thank our owners for joining us and getting the business of governance done through technology this year.
After a year defined by a global pandemic and social unrest, many people are wondering where we go from here in terms of work, society, economics, and so much more. We were fortunate to be joined by three speakers who brought their own experience and expertise to bear on these big questions.
In this article, we'll provide a brief synopsis of what each speaker discussed so you can have some food for thought as you both plan for the future and reflect on the events of the past year.
The meeting kicked off with a minute talk by Dr. Ty Richardson. Ty is the CEO of the YoPro Global Foundation and a director of One Global Index Consulting. A great deal of his energy goes toward thinking about the future of work. He regularly speaks on business transformation, personal and leadership development, and provides career coaching to young employees.
We asked him to talk about what work may look like in a post-COVID environment.
The pandemic created a large push toward technology, including in businesses that were not previously technology-forward. In many ways, the pandemic was a fast-forward button, forcing companies that had been lagging in technology to finally embrace it. Going forward, this should actually be a positive for them, their customers/members, and employees.
Further, COVID caused companies to pause and reevaluate their offerings. Do restaurants really need to offer 500 items on the menu, for example? The really interesting unknown right now will be what happens to office space if companies decide they can cut offices space and save costs without sacrificing productivity or culture.
On the positive side, the pandemic gave credit unions and community banks the chance to teach more members/customers how to use remote/online banking.
On the other hand, there are two main concerns for credit unions and community banks: talent recruitment and out reach to members/customers.
In terms of business, community financial institutions may need to diversify into more areas, such as SBA lending, point-of-sale services and asset-based lending. This is because of a possible shift in client profiles due to low interest rates, less consumer spending, high unemployment and other factors that make consumer lending more risky.
According to Gallup, the most desired skills for the next generation of employees are Adaptability, Developer (nurturing of skills in others), and Learner (people who enjoy expanding their knowledge base). It will be critical for companies to invest in people who think about work not as a static thing, but as something that evolves and changes over time.
Work-from-home (WFH) is a huge discussion. Let's assume that many companies land on a hybrid model where employees work from home some days and come to the office other days. Companies will need to justify, very clearly, why coming into the office is necessary. Obviously some employees will love a hybrid model and others won't, so clear communication is going to be important, no matter what model a company chooses.
In terms of culture, after everything that happened socially in 2020, companies will need to be more deliberate in creating and nourishing social capital and diversifying their workforces. Knowledge transmission will also be key. Set up groups for new employees to meet each other and learn from experienced employees. Integration of new hires will be more important than ever.
For more information about Dr. Ty Richardson, please visit his website.
Twin Cities small business owner, community leader and philanthropist Nicole Jennings spoke next. A former nurse turned fashion entrepreneur, Nicole has founded two companies that operate in a unique way: Queen Anna House of Fashion and One Posh Closet.
Nicole's businesses support the humanitarian efforts of non-profits in Minneapolis/St. Paul. Her philanthropic business model is a vehicle for giving back to the community, supporting social justice and providing disaster relief.
The coronavirus had a major impact on minority-owned U.S. businesses last year. It is estimated that 41 percent of black-owned businesses closed for good, as did 32 percent of Hispanic-owned and 23 percent of Asian-owned businesses. For comparison, most estimates show between 15-18 percent of white-owned businesses closed due to the pandemic.
Unfortunately, only 2 percent of black-owned businesses received funds through the Paycheck Protection Program. This lack of funds accelerated the closures.
Forbes says one reason so few minority-owned businesses received PPP loans is that most of the loans were obtained through commercial banks, which prioritized their existing customer bases over anyone else. Perhaps going forward there is an opportunity for smaller, community financial institutions to break into business lending and serve the businesses that are being underserved by the traditional, large commercial banks.
Nicole says that when you, as a lender, speak with a minority business owner, understand that you're often talking to someone who feels as though they have been ignored by the financial system. Sometimes there is a feeling that a lender is only looking to do business with the minority company to make the lending institution itself look better. So, when you talk to them, emphasize with sincerity that your goal is truly to assist the business. Don't use language like "we're doing X for you." Instead, language like "we would love to assist you" is much better.
Our final speaker was Dr. Hamilton Fout, Fannie Mae's VP of economic and strategic research. Hamilton works for Fannie's chief economist, spending a lot of his time applying insights from quantitative analysis to develop risk management strategies. His specialties include mortgage risk, housing economics, statistical modeling and macroeconomics.
Dr. Fout began by sharing that Fannie's forecast expects the U.S. economy to grow by 7 percent in 2021, which would be the largest growth since 1983. That optimism should be tempered, however, by the reality that we are very close to a macro scale event (the pandemic) and when you're so close to such an event there are risks . One risk is that some of the newest stimulus package becomes expressed as inflation. As far as housing goes, inflation could translate to higher interest rates. Indeed, the 10-year Treasury jumped recently, which puts upward pressure on mortgage rates.
It is very interesting to look at the labor market and housing market together. The "unemployment rate" is hovering around 6.5 percent, but you have to look further. Look at the unemployment insurance claims and you'll realize that the real rate is more like 12 percent. The question, then, is "why is housing so strong when we have such high unemployment?"
First, the economic trauma has occurred mostly in the hospitality and leisure industries, which contracted by almost 50 percent - stunning. But these categories employ many renters and not many homeowners, so that is one big reason why the purchase market did not suffer. There is a risk that industries that employ more homeowners will start to suffer if the pandemic goes on, but hopefully the vaccine rollout can cut that possibility off before it happens.
The second reason housing stayed strong is because, despite the unemployment problem, incomes actually rose year-over-year. This is because of programs like the Economic Impact Payments (stimulus checks) and because of the Paycheck Protection Program. These efforts were able to deliver money to people relatively successfully.
There were $4.5 trillion in mortgage originations in 2020, blowing away the previous record of $3.7 trillion set in 2003. This was driven by the refi boom, but also by a great purchase market, which rose 20 percent compared to a year earlier.
For 2021, Fannie sees more than $4 trillion in volume again. Fannie is in fact forecasting 13 percent growth in purchase originations. Refis should stay high for the first half of the year and then slow down. As of mid-February, about two-thirds of people with mortgages would benefit from a refi at current rates, so that is a ton of potential.
On the supply side, incredibly tight conditions remain. Traditionally, housing prices are well behaved if there is a 4-8 month supply of homes available. In the beginning of 2021, there was less than 2 months worth of supply. This is causing home prices to rise. For 2020, home prices grew 10.5 percent, much faster than 2019. For 2021, expect mortgage rates to increase and ultimately price growth to slow to around 4 percent.
To connect with Dr. Fout, visit his LinkedIn page. You can also download his presentation here (please keep in mind, this was delivered in mid-February, so some of the information may have aged).
We have all lived through one of the strangest periods in history together, and as we go forward it is helpful to take in all the different perspectives available. We hope our speakers' insights give you some food for thought as we enter a (hopefully) post-pandemic world soon.