Housing Is Staging a Comeback

CUs have doubled their share of mortgage originations in less than a decade.

January 6, 2013

By almost every measure, the U.S. housing market has improved, and most analysts believe housing is in the midst of a sustainable recovery.

This is a big deal. Housing, after all, accounts for about 20% of U.S. economic activity, and it typically leads the economy out of recession.

It’s a big deal for credit unions, too, because housing finance has become a big part of what we do.

Credit union mortgage originations now make up 6.7% of all U.S. mortgage originations—double the market share of less than a decade ago.

In the first half of 2012, credit unions originated $56.3 billion in first mortgages. If this continues, full-year credit union mortgage originations will be 35% higher than the 2011 total, and will exceed the previous record (from 2009) by nearly 20%.

Mortgages now account for 54% of credit union loans and 32% of credit union total assets. That’s up from 42% of total loans (26% of total assets) 10 years ago.

Recent improvements in economic fundamentals have released a lot of pent up housing demand.

Labor markets are healing in obvious ways. The economy added two million jobs in the past year and the unemployment rate declined from 9% one year ago to 7.9% today.

Incomes are increasing on an inflation-adjusted basis. And the consumer confidence level increased to 73.7 in November, according to the Conference Board—nearly double what it was a year before.

Since summer, both new and existing home sales have risen at a double-digit pace. The National Association of Realtors reported that October existing home sales increased 11% compared with last year’s levels.

And new-home sales showed a 17% year-over-year increase in October, following a 21% increase in September and 20% jumps in both July and August, according to the Census Bureau.

With strong sales, Census Bureau data show eye-popping annual increases in housing starts, with growth of 19% in July, 29% in August, 33% in September, and 42% in October.

Home prices have stabilized and are now consistently rising. This not only increases household wealth (and the ability and willingness to spend and borrow), it tends to nudge potential homebuyers off the sidelines.

Both the Federal Housing Finance Agency (FHFA) Home Price Index and the Case-Shiller 20-City Price Index reflect monthly price increases in each of the past eight months.

The FHFA index (which is based on originations of conforming mortgages) indicates prices are up 4.4% compared with last year’s levels, while the broader Case-Shiller index shows an annual gain of 3% in September.

Additional trends include rising incomes, historically low interest rates, and modest price increases, which have all contributed to keep home affordability near all-time highs.

Combine this with the facts that new-home inventories are near all-time lows and existing inventories have declined to 5.4 months at current sales rates, and you have a clear signal of more buying and building on the horizon.

While all eyes now are on the fiscal cliff negotiations, we are confident that policy makers recognize the gravity of the situation and take seriously the potentially devastating impact inaction could have on our nascent economic and housing market recovery.

Nevertheless, the overall mortgage market is expected to slow by about 20% in 2013 due to modestly rising interest rates and fewer refinancings.

Purchase mortgages, however, are expected to rise by roughly 15% in 2013 due to a stronger economy and pent up demand for home purchases.

Overall, home sales are expected to rise 3% and home prices are expected to rise 2% to 3% in 2013. Though modest, these increases should continue to prompt some buyers to get off the sidelines and in the game.

That’s good news for the economy, credit unions, and members.

MIKE SCHENK is vice president of CUNA’s economics and statistics department. Contact him at 608-231-4228.