A new report by CUNA Mutual Group finds auto loans lead lending efforts, but demand is fading.
Members needing money for cars and businesses fueled lending in November among the nation’s 5,806 credit unions, but CUNA Mutual Group is predicting car lending will slow this year.
Home equity lines of credit (HELOCs) and other second liens showed the weakest growth in November, while credit card growth lagged slightly, according to the Credit Union Trends Report from CUNA Mutual Group.
New car loans expanded faster than those for used cars from October to November, resulting in a 1% overall gain that matched last year’s one-month gain. Credit unions ended November with $338.5 billion in new and used car loans, up 12.7% from a year ago and increasing its share 63 basis points to nearly 35% of total loans.
The growth in auto loans has been fed by the increasing number of credit unions pursuing dealer agreements for indirect lending. However, many credit union executives say the loans from indirect lending carry low margins and the new members’ connection to their credit unions are tenuous.
CUNA Mutual economist Steven Rick said overall growth in credit union auto loans will be limited by lower new car sales. Sales peaked at 17.5 million cars and light trucks in 2016, but fell to about 17.3 million last year, the first annual decline since 2009.
“Expect auto sales to slow to 17 million units in 2018 as pent up demand fades away,” Rick said.
Auto loans have slowed at Golden 1 Credit Union, Sacramento, Calif. ($11.3 billion in assets, 902,074 members), but speed is relative, said Greg Brown, chief lending officer for the third largest auto lender among credit unions.
Golden 1 CU’s car loan portfolio stood at $4.4 billion on Sept. 30, up 28% from a year earlier and accounting for 55% of total loans. Other types of loans grew 6% to $3.6 billion.
Despite portfolio growth, auto loan originations fell from a peak of about $2 billion in 2016 to $1.2 billion last year. This year the goal is $1.6 billion, Brown said.
And 28% percent growth in the auto portfolio in 2017 compares with an average annual growth rate of about 40% from 2011 to 2016.
“For the last five years we have had an artificially low interest rate environment. It’s good times; everybody can afford more things,” he said. “Things start to turn around, the economy gets better. Now interest rates are going up. We’re going back to a normal economic environment.”
The CUNA Mutual report found real estate loan growth to be slightly lower than average. Credit unions held $477.6 billion in first- and second-lien mortgages and home equity lines of credit on Nov. 30, up 10% from a year ago. Real estate’s share of total loans was 49% in November, down 30 basis points from a year ago and down from 51% at the end of 2014.
“Home sales are limited due to a lack of homes for sale,” Rick said. “The supply of existing homes available for sale is becoming increasingly scarce with the inventory-to-sale ratio running at a very low 3.4 months, the lowest since January 2005. This signals a very tight housing market as rising housing demand runs up against limited supply, which is putting upward pressure on home prices.”
Loans of all types that were delinquent at least 60 days fell to a rate of 0.80% in November, down from 0.82% one year earlier.
Credit unions held $975.3 billion in loans on their books Nov. 30, up 10.7% from a year ago. The major components and their share of total loans were:
- New car loans grew 14.5% to $133.5 billion. Their share grew 44 basis points to 13.69%.
- Used car loans grew 11.6% to $205 billion. Their share grew 18 basis points to 21.02%.
- Credit cards grew 8.5% to $56.7 billion. Their share fell 12 basis points to 5.81%.
- First-lien mortgages grew 10.8% to $393 billion. Their share grew 2 basis points to 40.3%.
- Second-lien mortgages grew 6.6% to $84.5 billion. Their share fell 34 basis points to 8.66%.
- Member Business Loans grew 12.7% to $75.2 billion. Their share grew 14 basis points to 7.71%.
Membership continues to expand. The movement had 113.5 million members as of Nov. 30, up 417,000, or 0.37%, from October, compared with a 0.23% one-month gain a year earlier.