Trends Report: Interest rates, home prices and CU productivity on the rise

In its December 2021 Credit Union Trends Report based on data from October, CUNA Mutual Group reported that interest rates will rise sooner than expected as the economy approaches full employment and inflationary pressures build. In addition, credit union productivity is “significantly” up.

Interest rates
On Dec. 15, the Federal Reserve announced an acceleration in their rate of tapering of their asset purchase program due to a rapidly strengthening labor market and accelerating inflation, which means the Federal Reserve could end its additional purchases of Treasury bonds and agency mortgage-backed securities by mid-March, the report stated. This could put upward pressure on longer-term Treasury interest rates and mortgage interest rates

Home prices
Also on the rise are home prices, which rose 1.3% in October from September, and 18% year-over-year, the fastest growth since the series began in 1976, according to the report. Credit union fixed-rate mortgage lending was “firing on all four cylinders” during the last 12 months due to mortgage interest rates averaging 2.94% in 2021, down from the 3.93% average in 2019, the year before the onset of the COVID-19 pandemic, according to the report.

However, expect mortgage originations to decrease 25% in 2021 due to rising interest rates and fewer opportunities for mortgage refinances, the report predicted.

Credit union productivity
The report also found that the credit union system has “become significantly more productive” over the past 21 years. “Back in the year 2000, it took on average 0.38 full-time credit union employees to manage every $1 million in assets. Today that ratio stands at 0.16, a 58% improvement in productivity overall or 2.9% increase in productivity per year.”

The report also found that:

  • credit union loan balances rose 1% in October, above the 0.2% increase reported in October 2020;
  • credit union consumer installment credit balances (auto, credit card and other unsecured loans) reported 0.4% in October, the same 0.4% increase set in October 2020, due to an acceleration of 2.8% in the “unsecured personal loan” category;
  • for all lenders, outstanding consumer credit rose by $17 billion in October, according to the Federal Reserve, which is significantly lower than the $28 billion reported in September, but above the $15 billion average growth reported during the years 2015-2019;
  • credit union new auto loan balances fell 0.7% in October, slower than the 0.7% rise set in October 2020, and decreased 2.1% during the last year.
  • credit union savings balances rose in October by 1.0%, less than the 1.7% rise in October 2020; and
  • savings balances grew at an 8.8% seasonally-adjusted annualized growth rate in October, below the 19.7% reported one year earlier but above the 7% long-run average.

The Credit Union Trends Report is a monthly “pulse check” on the state of the credit union marketplace, often placed in a historical context. The report includes data from two months prior and is published and distributed by Steven Rick, chief economist for CUNA Mutual Group. The Trends Report is intended to provide a review and analysis of recent credit union financial performance and operational results in the context of recent economic activity. Data and analysis are provided to establish standards against which credit unions’ own performance can be compared.

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