The data also show the CU annual membership growth rate has slowed to a point not seen since the tail end of the Great Recession in November 2011.
Highlights from the September Trends Report, which is based on CU performance through July:
- The U.S. money supply increased $620 billion during the last year, boosting credit union deposit growth rates
- Credit union new-auto loan balances fell 3.6% year to date, significantly below the 8% expected during a healthy labor market
- Credit union first mortgage loan originations dropped 8.9% in the first half of 2024 compared to the first half of 2023
Here’s a look at how credit unions performed by category, with analysis by TruStage Chief Economist Steve Rick.
Total Lending
Credit unions of all asset size reported slower loan growth this year than last year, especially in the direct and indirect auto loan categories. Bank lending has also been weak over the last year with loan balances rising only 2.3%, below their long-run average of 6%.
“Slower than normal lending growth rates are one of the ‘long and variable lags of monetary policy’ that Federal Reserve Chairman Jerome Powell likes to discuss at his press conferences,” noted Rick.
Credit union loan balances grew at a 2.7% seasonally-adjusted, annualized growth rate in July, below the 5.9% pace set in July 2023, and significantly below the 19% pace set in July 2022, when credit unions picked up market share in the auto loan space. Over the long run, credit union loan balances rise on average 7% per annum.
“We are forecasting slightly better credit union loan growth for 2025 (around 5%) as lower interest rates encourages members to borrow and spend,” Rick said.
Consumer Installment Credit
Credit union consumer installment credit rose 0.7% during the 12 months ending in July, the slowest pace since January 2012, and below the 3.1% pace reported by all other lenders. Bank consumer credit growth rates have also been declining for the last two years as liquidity was in short supply. Credit union credit card balances grew at a 6.6% seasonally-adjusted annualized growth rate in July, below the 10.3% pace reported in July 2023, the report states.
“Weak deposit growth at many credit unions is reducing the supply of credit while higher borrowing costs are reducing the demand. July’s credit card seasonal factors usually add 0.62 percentage points to the underlying trend growth rate as people venture out on vacations. Falling gas prices and consumers slowing their spending on services will keep credit card loan growth around its long run average of 5.5% for the remainder of the year,” the report adds.
Vehicle Loans
Credit union new-auto loan balances fell 0.3% in July, below the 0.1% gain reported in July 2023. Higher interest rates and increased competitive pressure from captive finance companies has reduced new auto lending at credit unions. On a seasonally-adjusted annual rate new-auto loan balances fell 5.7% in July, the slowest pace since July 2011.
“The month of July is historically in the middle of the May through October new-auto lending season. Credit union new-auto loan balances fell 3.6% year to date, significantly below the 1.9% gain reported during the first seven months of 2023, and below the 8% long-run average expected during a heathy labor market,” wrote Rick.
Vehicle sales rose to a 15.8 million seasonally-adjusted annualized sales rate in July – up 4.3% from June but down 0.6% below the 15.9 million sales pace set in July 2023.
“Affordability issues during the last few years, caused by both high vehicle prices and high loan interest rates, has kept vehicle sales below its 16.5 million long run equilibrium. The increased supply of vehicles, however, has reduced new car prices 1.2% during the last 12 months while used vehicle prices are down 10.4%. Lower interest rates during the next few months and falling vehicle prices will ensure that new-vehicle sales rise towards the 16.5 million long-term equilibrium in 2025. We are therefore forecasting credit union new-auto loan balances will rise 2% next year and used auto loan balances will rise 4%,” the report states.
Real Estate Information
Credit union fixed-rate first mortgage loan balances rose 0.1% in July, below the 0.3% increase reported in July 2023, but have declined 0.3% during the last year. Credit union fixed-rate first mortgage loan balances fell 0.4% at a seasonally-adjusted annual rate in July, the eighth consecutive month of decline.
Adjustable-rate first mortgage balances fell 0.6% in July, below the 0.6% gain reported in July 2023, but have increased 16.8% during the last year. Credit unions originated $49.1 billion first mortgage loans in the first half of 2024, an 8.9%% decrease below the $53.9 billion in originations in the first half of 2023, and a remarkable 69% decrease below the record $156.8 billion in originations in the first half of 2021.
Credit unions then proceeded to sell off 33.7% of those originations into the secondary market, above the 22.1% sold off in the first half of 2023. The stage is set for a better second half of 2024, due to the recent fall in mortgage interest rates to around 6% and a rising supply of home for sale.
“We expect both purchase and refinance mortgage activity to accelerate during the next six months. The contract interest rate on a 30-year fixed-rate conventional home mortgage fell to 6.85% in July, down from 6.92% in June and slightly above the 6.84% reported in July 2023. We expect long-term interest rates to fall this winter as the Federal Reserve winds down their Quantitative Tightening program; reducing their purchases of Treasury bonds and agency mortgage-backed securities. Home prices rose 0.2% in July from June despite very low home affordability, according to the S&P Core Logic Home Price Index, and were up 5% on a year ago basis. Expect the pace of home price appreciation to slow as inventory begins to grow and many buyers have been priced out of the market. Lower interest rates will increase housing demand, but housing supply is expected to increase more. So, expect home price appreciation to slow to around 2-3% over the next year,” Rick said.
Savings And Assets
Credit union savings balances fell 0.3% in July, above the 0.9% decrease in balances reported in July 2023. July is normally the weakest month of the year for saving balance growth due to seasonal factors shaving off -0.6% from the underlying trend growth. These seasonal factors include things like vacation spending and auto loan down payments. During the last 12 months, savings balances rose 3.8%, below the pre-COVID 19 pandemic average of 6.7%.
With credit unions raising the interest rates paid on saving deposits, the interest paid by credit unions should have raised deposit balances by around 1.9%. Moreover, with credit union memberships growing 1.2% during the last 12 months, deposit balances should have increased as new members opened checking and savings accounts and deposited new money into the credit union.
“Therefore, savings per member is currently rising at a slow 2.6% pace (3.8% - 1.2%) below the 4.2% long run average. The weak credit union savings growth rates are partly explained by the national Personal Savings Rate (savings as a percent of disposable income) coming in at 3.3% recently, according the Bureau of Economic Analysis, almost 1/2 the long run average of 6%. According to NCUA call report data, credit unions of all sizes reported weak savings growth rates during the last year as compared to long run averages. We expect credit union savings balances to rise 5% in 2024, and then accelerate to 6% in 2025,” the report states.
CUs And Members
Credit union memberships grew 0.1% in July 2024, below the 0.4% reported in July 2023, due to a significant reduction in auto loan originations and slower job growth. On an annual growth rate basis, memberships are up only 1.2% in the year ending in July 2024, below the 4.3% pace set in the year ending in July 2023. This 1.2% pace is the slowest since the tail end of the Great Recession in November 2011. The membership growth slowdown was partially driven by the 2.4 million jobs gained during the last year, according to the Bureau of Labor Statistics, which is below the 3.2 million jobs gained in the year ending in July 2023.
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