Despite signs of a slowdown, credit unions can expect continued economic growth
At the end of last year, the U.S. economy was humming along, with inflation under control and unemployment near historic lows. These and other drivers should keep the economy primed for growth in the coming year, despite rising interest rates impacting mortgage and auto loan volumes and a flattening yield curve inching toward inversion.
Just when such a slowdown can happen is, of course, anyone’s guess. There are some troubling signs, such as rising household debt loads and tighter liquidity profiles. But there also are key indicators pointing to continued — if a bit more tempered — prosperity.
Now, then, is the time for credit unions to prepare for the recession that’s coming.
Mortgages and auto loans may be harder to come by
Despite strong housing markets in almost every region last year, there are signs that prices are starting to plateau due to rising mortgage rates and loosening housing stocks. Where markets are still quite tight, affordability will remain an issue — both for potential buyers priced out of markets and construction companies paying more for supplies and labor. The key to maintaining strong mortgage volumes may rest with millennials.
“Overall, the housing market is grinding to a halt,” says Curt Long, NAFCU chief economist and vice president of research. “Now rising rates are suppressing demand as well. Builders are dealing with higher material costs, a shrinking supply of lots and labor constraints. All of those issues notwithstanding, the demographic trends are positive as younger generations are forming households and buying homes again. That should be enough to keep be enough to keep the market afloat for now.” Even where home values continue to increase, such as the Fed’s Fifth District, which covers the Carolinas, West Virginia, Virginia, Maryland and Washington, D.C., new housing permits were 5 percent lower in 2018, while housing starts were down 8 percent, according to Fred Eisel, chief investment officer for Vizo Financial Corporate Credit Union in North Carolina. “The number of home builds and supporting subcontractors are much lower since the [housing] crisis, and finding labor has become much tougher for many, slowing the building process overall,” he says.
Western regions such as Nevada, Texas and Colorado also will find hot housing markets continuing to cool. “Prices began dropping after last summer’s record highs, and houses are staying on the market longer,” says Christine Wiley, CEO of Rocky Mountain Law Enforcement Federal Credit Union in Denver. “It’s a sign that sellers are losing control to buyers.”
From the January-February 2019 edition of The NAFCU Journal magazine.
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