Optimism Rising for Auto and Housing Sectors

Economists agree opportunities exist for CUs to boost their auto loan portfolios.

October 18, 2012

“We’ve changed who we are as credit unions in terms of our balance sheets,” CUNA Chief Economist Bill Hampel told credit union executives attending CUNA’s Economics & Investments Conference in Chicago.

New-auto loans once made up 25% of credit unions’ loan portfolios. They now make up just 10%, Hampel says. First mortgages, once about 20% of credit union loan portfolios, now make up more than 40%. But there are signs that auto lending may heat up, and Hampel advises credit unions to be there when members need them for loans and regain the business they had for many years.

Essentially, the economy lost an entire year of auto sales—about 16 million units—as a result of the recession, Hampel points out.

Paul Traub, business economist with the Federal Reserve Bank of Chicago, agrees. “The current fleet is old—as old as it’s ever been,” he says. The average age of passenger cars and light trucks is about 11 years. This could boost sales, both economists agree.

Additionally, Hampel says credit unions can expect:

Housing outlook

Optimism in the housing sector could bring quick employment growth, NCUA economist John Worth told conference attendees. Worth sees positive trends in home sales and home prices. This, he says, indicates more stability in the market.

As of first quarter 2012, about 24% of borrowers owed more on their homes than they were worth, down slightly from the previous quarter. Worth sees this as another positive sign because the share of borrowers who are underwater also declined in 48 states in the past year.

Recessions do have positive effects, Hampel adds. “Businesses become leaner and meaner. The result is stronger businesses with stronger balance sheets.

“Household balance sheets are also substantially improved,” he continues. “And both sectors still aren’t spending as much as they did before the recession.”

CU Directors NewsletterThe building blocks for growth are present, Hampel notes, although consumer and business confidence remain shaky. That should change once employment figures improve.

“Housing has a pulse again,” says Jonathan Smoke, executive director of research for Hanley Wood Market Intelligence.

His research shows:

‘R&R’ Is a Growth Area

“People are ‘tired’ of their existing homes,” Jonathan Smoke, executive director of research for Hanley Wood Market Intelligence, told attendees at CUNA’s Economics & Investments Conference in Chicago.

So consumers believe it’s an opportunistic time for home sales, from both interest-rate and pricing perspectives.

Remodeling and replacement (R&R) also is a growing market for lenders. “Most consumers don’t plan for these projects,” he says, so they tap savings and investment funds.

Credit unions can suggest home equity products as home values rise. If you could serve at least half of your members who need R&R funding, Smoke says, it would be a great opportunity.

This article first appeared in Credit Union Directors Newsletter.