Rising Interest Rates Barely Dent CU Lending
Credit unions' gains accelerate from May to June for cars and businesses.
Annual loan growth has been at or above 10% for the past several years, and has been expected to return to single-digit growth—eventually. However, CUNA Mutual Group reported Tuesday actual balances rose 10.2% from June 2016 to June 2017, down only slightly from a feverish 10.8% gain a year ago.
From May to June total credit union loans rose 1.3% to $1 trillion, up from a 1.1% one-month gain a year ago, according to the Madison, Wis.-based CUNA Mutual Group’s monthly Credit Union Trends Report.
CUNA is still forecasting GDP growth will slow from 3% this year to 2.5% next year, and a drop in loan growth to 7% in 2019 “as interest rates continue to rise and pent-up demand drops off,” senior economist Jordan van Rijn said.
But while interest rates have actually risen, consumer appetites keep going forward.
Charts distributed with the CUNA Economic Update for August still predict a 9% increase in total loan balances this year for credit unions, but van Rijn goosed the forecast a smidgen to “9% to 10%” in his video comments.
Average rates for 30-year, fixed-rate mortgages ranged from 6% and 7% before the Great Recession began in late 2007, and fell to lows of about 3.5% from fall 2012 to spring 2013, and again in mid-2016. Since then rates, as the Fed ratchets up short-term rates, mortgage rates have risen to 4.6%, and CUNA expects them to meet or beat 5% by year’s end.
“While rates are still well below pre-recession levels, rising interest rates will eventually decrease loan demand, especially for second mortgages, like home equity lines of credit,” van Rijn said.
“We may also start to see fewer home purchases as home purchases become more expensive, and folks who have locked in low mortgage rates become reluctant to sell their homes, and lose those low rates,” he said.
Broadly, reports from CUNA, CUNA Mutual Group, Callahan & Associates and the Fed show most loan categories for credit unions are growing at a healthy clip, and faster than comparable categories for banks.
Discerning trends from the size of percentage increases in portfolios depends in part on whether the comparisons are for May-to-June changes or June-to-June changes.
For example, the Credit Union Trend Report shows car loan growth is slowing—at least if you look at 12-month changes.
Total car portfolios stood at $362.8 billion on June 30, up 12.1% from June 2017. Increases for the twelve months ending in June have decelerated from 15.4% in 2015, to 14% in 2016 and 13.6% in 2017.
But the gain from May to June was great: total car loans rose 1.7% this year, up from a 1% one-month gain a year ago.
The opposite was true for first mortgages. For the 12 months that ended in June, balances rose 11% to $419.9 billion, up from increases of 9.6% in 2015 and 2016, 10.4% in 2017. But the one-month gain was 1.2%, down from a 1.7% gain a year ago.
Overall, the one-month changes showed improvement for cars and businesses, and slower growth for real estate and credit cards:
- New car loans rose 2.3% to $144.2 billion from May to June, up from a 1.1% one-month gain a year ago. For the year, they grew 13.8%.
- Used car loans rose 1.3% to $218.6 billion from May to June, up from 1% a year ago. For the year, they grew 11%.
- Credit cards rose 0.5% to $58.6 billion from May to June, down from 0.7% a year ago. For the year, they grew 8.7%.
- First-lien mortgages rose 1.2% to $419.9 billion from May to June, down from 1.7% a year ago. For the year, they grew 11%.
- Second-lien mortgages fell 0.4% to $85.2 billion from May to June, compared with a 0.4% one-month gain a year ago. For the year, they grew 4.7%.
- Member business loans rose 1.4% to $82.4 billion from May to June, up from 1% a year ago. For the year, they grew 16.9%.