By Ray Birch
MILWAUKEE—Auto lending is emerging as one of the biggest areas of risk for credit unions, even as the broader U.S. economy continues to perform better than many expected, according to Bill Handel, chief economist at Raddon, a Fiserv company.
Delinquency trends in auto portfolios are now approaching levels last seen during the Great Financial Crisis, Handel said, driven by a combination of high vehicle prices, elevated interest rates and increasing financial pressure on lower-income consumers.
“There’s probably still a lot of risk in the auto portfolios,” Handel said. “Our numbers in terms of delinquency behavior in the United States are now rivaling what they were during the Great Financial Crisis.”
Economy Holding Up Better Than Expected
Despite those pockets of risk, Handel said the broader economy remains surprisingly resilient.
“If you look at the U.S. economy, it’s actually performing quite well—probably better than most people would have anticipated,” he said.
While the first quarter of 2025 showed negative GDP growth, Handel said the decline was largely the result of tariff effects and other distortions rather than true economic weakness. Growth rebounded in the second and third quarters and remained relatively solid through the end of the year.
When government sector impacts are stripped out, underlying economic growth is closer to 3%, he said.
But the economy’s strength also reflects a growing imbalance between wealthy households and everyone else.
Handel pointed to the “Buffett Indicator”—which measures stock market valuation relative to GDP—as evidence of that divide. The measure is now around 220%, a historically elevated level that reflects strong asset valuations and a significant wealth effect.
That concentration of wealth is helping sustain economic growth but also introduces potential volatility.
“When an increasingly smaller part of the population is responsible for continued growth, it’s just a little bit more dangerous,” Handel said.
Housing Finally Showing Signs Of Life
One area that could begin to improve for credit unions is housing.
Mortgage rates have recently fallen below 6%, which Handel said could gradually revive a market that has been unusually stagnant.
Over the past three years, home sales in the United States have been roughly as low as they were during the financial crisis, an extraordinary stretch of weakness, Handel noted.
Bill Handel
“We’re beginning to see that opening up,” Handel said. “It’s not going to be a torrential release, but you’re going to see more activity as rates slowly trickle down.”
A modest rebound in housing could provide a boost to mortgage lending volumes for credit unions that rely heavily on real estate lending.
Diversification Becoming Critical
Given the uneven economic environment, Handel said diversification will be increasingly important for credit unions.
Institutions should avoid concentrating risk in any one category and instead maintain balanced portfolios across lending segments.
Home equity lending has been one of the fastest-growing categories for credit unions in recent years and could continue to lead growth on a percentage basis in the near term, he said.
Business lending also represents a potential opportunity. Raddon’s research shows small businesses expressing strong optimism about the economy, a trend that could translate into increased borrowing demand.
“There’s a lot of optimism in small businesses,” Handel said. “And that bodes well for the economy.”
Interest Rates May Stay Higher
Another factor credit unions must watch closely is the evolving interest rate environment.
Although the Federal Reserve has cut the federal funds rate by about 175 basis points since September 2024, longer-term interest rates have moved in the opposite direction. During that same period, the 10-year Treasury yield has risen roughly 50 basis points, Handel pointed out.
The shift reflects the reality that long-term rates are driven more by market expectations and inflation concerns than by direct Fed policy, he said.
As a result, Handel expects interest rates overall to remain relatively elevated even if the Fed continues easing short-term rates.
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