Cars & HELOCs May Push Loan Growth for CUs
CUNA Mutual Group's Monthly Trends Report shows first mortgages stalled from April to May.
It’s monthly Credit Union Trends Report showed portfolios ended May with slightly more than $1 billion in total loans, a growth rate of 1.3% from April to May, compared with a 1.2% month-to-month increase a year ago. Growth over 12 months was 9.9%.
Month-to-month growth accelerated for home equity lines of credit, new cars and used cars, while braking on credit cards and business loans. First-lien mortgages, which have been a leading source of loan growth, stalled at an April-to-May growth rate of 0.8%, the same as a year ago. For the year, first-lien mortgages grew 11.4% to $414.5 billion.
“First-mortgage lending has made up the lion’s share of loan growth over the last year,” Steven Rick, CUNA Mutual Group’s chief economist, said. “Since May of 2017, credit union first-mortgage loan balances increased a record $42.4 billion, followed by vehicle loan balances rising $36.3 billion.”
However, both interest rates and home prices continue to rise, pushing more first-time buyers out of the market.
The contract interest rate on a 30-year, fixed-rate conventional mortgage was 4.59% in May, up from 4.47% in April and 4.01% set in May 2017. Rick said the Fed will likely raise short-term interest rates two more times in 2018 and 0.75% in 2019.
The Core Logic Home Price Index rose 1.1% from April to May and 7.1% from a year earlier.
Rick said the dual impacts on mortgage costs contributed to first-time homebuyers accounting for 31% of purchases in May, down from 33% a year ago.
“House price appreciation is at its strongest pace in four years,” Rick said. “A strong labor market over the next few months will lead to a surge in home sales as household formation increases and existing households experience improving balance sheets and decide to exchange their old homes in for newer ones. However, without first-time homebuyers, the market is just shuffling homes among current homeowners and not generating new demand.”
Credit unions had 115.9 million members in May, up 4.2% from a year earlier. They belonged to 5,722 credit unions, two fewer than April and 31 fewer than May 2017.
Assets ended May above $1.4 trillion, up 5.4% from a year earlier. Capital grew 5.7% to $152.7 billion and savings grew 5.7% to $1.2 trillion.
Loans continued growing faster than savings, pushing the credit union average loan-to-savings ratio to 83.4% in May, up from 80.2% a year earlier, Rick said.
“Credit union savings balances grew 5.7% over the last year—below the 6.1% 10-year average growth rate—due to members’ desire to spend rather than save,” Rick said. “We are still below the high-water mark for the loan-to-share ratio set back in September 2008, when credit unions were 84.1% loaned out.”
The report also showed:
- New car loans rose 1.9% to $140.9 billion from April to May, up from a 1.1% gain a year earlier. Growth was 12.5% over the 12 months.
- Used car loans rose 1.6% to $215.7 billion from April to May, up from 1.4% a year earlier. Growth was 10.6% over the year.
- Second-lien real estate rose 1.1% to $85.5 billion from April to May, up from 0.6% a year earlier. Growth was grew 5.4% over the year.
- Member business loans rose 1.4% to $81.3 billion from April to May, down from 6.2% a year earlier. Growth was 16.5% over the year.
- Credit cards rose 1% to $58.3 billion from April to May, down from 1.1% a year earlier. Growth was 9% over the year.
Meanwhile, Samira Salem, a senior policy analyst at CUNA, said the trade group’s economists have lowered their expectations for economic growth next year because of concerns about inflation and tariffs.
CUNA economists increased their economic growth forecast for 2018 from 2.75% to 3% based on their belief in the short-term effects of the tax cuts, but they lowered their forecast for 2019 from 2.5% to 2.25% “because of expectations of rising inflation, growing national debt, increasing interest rates and the impact of the budding trade war,” she said.