ARLINGTON, Va. — The softening of the housing market shows no signs of abating any time soon, and NAFCU's senior economist says credit unions should leverage this situation to become members' primary financial services provider.
While the U.S. should expect to see a continued softening of the housing market, Jeff Taylor reminded credit unions they need to remember that mortgage activity was at record levels the past few years.
Even so, he said, "Despite the gyrations the market's gone through the past eight or so months, we're still at a relatively good level."
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NAFCU expects new home sales to fall 10% this year, resulting in the housing market subtracting about 1% from real GDP in 2006.
Taylor predicts the housing market will bottom out at levels the U.S. saw in the beginning of 2003, "which is a pretty good level," he said.
According to NAFCU's macro data flash for new home sales based on updated Aug. 24, 2006 data from the National Association of Realtors, new home sales in July declined by 4.3% to 1.07 million annualized units. New home sales are down 21.6% year-over-year.
One of the most obvious signs of a continued softening of the housing market is a building of home inventories. NAR data shows the situation weakened again in July–inventories of new homes reached a record 568,000 units. Consequently, the months of available inventory increased to 6.5 months, up from 6.2 months in June. This, says NAFCU, is the highest inventory level since the 6.7 months recorded in Nov. 1995.
"Inventories are definitely building, and that's a challenge for the U.S. economy. Great interest rates gave consumers the opportunity to get into homes they otherwise might not have been able to. But now with the softening of the housing market, builders and sellers will have to be more aggressive with incentives to move their inventory," said Taylor.
But this can all be an opportunity for credit unions, he emphasized.
"The builder or seller is going to make it as attractive as possible to get the buyer. It's an opportunity for credit unions to build partnerships with realtors who want to move homes," the NAFCU economist said noting that, "the banks have done a great job in this area."
NAR data show inventories of new homes have risen 22.4% during the past 12 months.
"Consumers will continue to buy homes and cars, but credit unions need to ratchet down their reality and expectations," said Taylor.
He estimates credit unions' loan growth will be about 6% through the rest of 2006, down from 10% in 2004 and 2005. But that's still a good growth rate, he said.
Taylor said credit unions need to look into getting more involved with other loan products to shore up their loan portfolios with services like member business lending and various insurance products.
"There will be a lot of repricing going on over the next couple years, and credit unions need to look at their portfolio and assess their risk level," said Taylor. –[email protected]
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