WASHINGTON (8/27/12)--Recent signs of recovery in the housing market bode well for credit unions and the economy in general, and indicate that consumers are generally more confident and willing to spend, Credit Union National Association (CUNA) senior economist Mike Schenk said last week.
The U.S. Department of Commerce this month reported that home starts in July increased by 21.5% and new home permits increased by 29.5% when compared to July 2011 numbers. Acting U.S. Commerce Secretary Rebecca Blank said the July 2012 numbers "show improvements for both the single- and multi-family housing sectors," and added that new home permits are at their highest level since 2008. She also noted that home prices and builder sentiment have improved nationwide.
The National Association of Realtors (NAR) last week reported that July sales of existing single-family homes, townhomes, condominiums and co-ops increased by 10.4% when compared to last year's numbers. The NAR said record low interest rates, combined with steadily increasing home rental rates, are helping to unleash pent-up homebuying demand. "However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions," NAR Chief Economist Lawrence Yun said.
Schenk noted that these year-over-year home sale increases follow a depressed 2011 home market, when government budget issues loomed large. However, today's economy is in a slightly better place today, he added.
He noted that credit unions are originating mortgages at high levels, but these new loans aren't significantly boosting overall loan growth, or interest income, at credit unions. "Interest rate risk concerns loom large, and credit unions don't want to be caught with huge unhedged portfolios of long-term fixed rate loans when market interest rates begin rising," he said.
Credit unions are benefitting from the home sale increases when they sell their mortgage loans on to the secondary market, Schenk said. They may also stand to benefit from the multiplier effect of home sales. Members are purchasing and taking out loans for a variety of home-related durable goods, including carpet, appliances, and other goods.
A recovering housing market may also create longer-term benefits for credit unions, CUNA Chief Economist Bill Hampel said. "The stronger the recovery in the housing market, the better the outlook for moderation in future National Credit Union Administration (NCUA) corporate stabilization assessments. The stronger the housing recovery, the lower the future losses on the legacy assets," he added.
"The recent strengthening in the housing market is probably not yet firm enough to cause major revisions in the loss estimates, but things are moving in the right direction. If the recovery in the housing market continues and strengthens, we're likely to see downward revisions in the legacy asset loss estimates," he said.
The NCUA this year charged credit unions a 2012 Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessment of 9.5 basis points (bp) of their insured shares as of June 30, and payment is required by Oct. 9.
Credit unions can expect between $1.9 billion and $5.2 billion in remaining assessments, and this total would be paid off between 2013 and 2021, according to the NCUA. Assuming the $3.6 billion mid-point of NCUA's published remaining assessment range, Hampel said credit unions would pay off the remaining costs in about four years at assessment rates similar to this year's. Three years of ten bp assessments, and an eight bp assessment in the fourth year, would cover the remaining corporate stabilization costs, he added.