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Looking forward, there’s optimism for credit union loan growth despite expected tight monetary policy conditions and an economic slowdown. Helpful underlying factors include:
Total credit union membership as of September 2022 is about 135 million strong. According to CUNA’s Monthly Credit Union Estimates, 2022 saw the fastest growth in membership in more than three decades with an increase of 4.5%.
This follows an increase of 4.3% in 2021. An expanding membership base implies greater potential demand for loans, especially when the unemployment rate is at the lowest level in more than five decades.
Despite the recent increase in total U.S. household debt, debt payments as a percentage of disposable income declined in 2020 and 2021 as people paid down credit card and other debt using excess savings and government transfer payments, and folded higher-rate credit into lower-rate refinanced mortgage loans.
Currently, the percentage of household income that goes to debt payments is 9.8%, which is similar to pre-pandemic levels.
Household balance sheets are strong, with good cash reserves, low delinquency, and a 40-year-low debt burden, according to the Office of the Comptroller of the Currency. Most of the outstanding consumer debt is priced at a fixed rate, which minimizes the risk of rising rates.
Supply chain issues and labor shortages disrupted the auto manufacturing industry and significantly reduced production in 2021 and 2022. Total new vehicle sales prior to the pandemic were 17 million at a seasonally adjusted annual rate. This fell by 4 million units in 2021 and 2022, which drove up prices of both used and new cars.
An increasing supply of automotive chips will improve production this year, according to IHS Markit’s January report. Although rising rates will slow the recovery of vehicle sales, pent-up consumer demand and aging rental fleets will lead to growth of an additional 1 million sales compared to last year, an 8% increase.
Mortgages represent the largest portfolio for credit unions and account for 45% to 50% of outstanding balances at any given time. Fannie Mae expects a cumulative 6.7% home price decline over the next two years. Elevated mortgage rates are expected to limit mortgage originations in 2023, but there’s a projected moderation in the second half of the year.
The Mortgage Bankers Association’s January forecast shows that outstanding balances will increase 3% in 2023 nationally. However, new originations will be lower than last year, and will start to trend up in 2024.
An analysis of mortgage originations since March 2022, when the Federal Reserve stopped the purchase of mortgage-backed securities and began raising federal funds rates, indicates that credit union mortgage pricing is affordable compared to banks and mortgage companies.
Affordable credit union home loans put millions of members on the path to financial security. Homeownership is the top way consumers build wealth. By extension, this also opens the door to significant intergenerational wealth transfers, which builds stronger, more resilient communities.
CUNA calculated the average APR of 30-year fixed mortgage originations using the Equifax analytic data set for borrowers of all credit profiles.
The monthly savings in payment for credit union members ranges from $77 for super prime borrowers to $197 for deep subprime borrowers compared to borrowers with similar profiles at banks and mortgage companies.
This is a significant amount of savings, ranging from $28,000 to $71,000 over the course of 30 years. Consumers are better off obtaining their mortgages at credit unions even when the Federal Reserve is raising short-term interest rates.
Overall, CUNA economists project that credit union loan growth will be 7.5% in 2023, closer to the 10-year average growth rate between 2011 and 2021. This is despite the assumption that the economy will grow below its potential, slowing consumer spending, and the possibility of a mild recession.
DAWIT KEBEDE is a senior economist at Credit Union National Association. Contact him at dkebede@cuna.coop.