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As Housing Recovery Continues, Forum Speaker Examines Implications
Wednesday, September 25, 2013 6:50 AM

Pounding hammers and buzzing saws are sounds signaling a housing recovery.  However, will that welcomed noise be drowned by rising interest rates?  And how can credit unions position themselves for both the opportunities and challenges ahead? 

“Credit union leaders may be surprised to see how strong the demand for housing and home mortgages is over the next few years,” according to James F. Smith, a former chief economist for both the National Association of Realtors and current chief economist for Parsec Financial Management, Inc. “The U.S. has not built enough new houses for several years, so ‘pent-up’ demand is huge.”  Smith points out that demographically driven demand from new household growth is about 1.25 million units a year, and another 250 to 300 thousand units are demolished each year. That means about 1.5 million single family starts should be the norm—a level that hasn’t been seen since 2006. U.S. home builder confidence is now at the highest level it’s been in eight years.

Credit unions are poised to participate in the real estate revival. In 2005, credit unions granted more than $59 billion in first-lien mortgages, but that number jumped to $123 billion in 2012 as credit unions increased their reliance on mortgage lending. In 2013, credit unions are on pace to close nearly $130 billion in mortgage loans. As recently as June 2013, real estate loans accounted for close to 53 percent of total credit union loans outstanding.

“Obviously, credit unions that are always striving to provide the best service possible to their members will want to take whatever steps are necessary to help their members find the right mortgage products. As these differ hugely depending upon the characteristics of the membership, credit unions must make informed choices to insure that those products are a good fit for both the members and the credit union as a whole,” said Smith.

Smith, who will be a featured speaker at Catalyst Corporate’s 36th annual Economic Forum, said the rise in housing demand is good news for the U.S. economy and it should continue for a long time to come.  “There are many reasons why we should expect the demand for housing to continue. The most basic is the simple demographic truth that the number of households in the U.S. grows steadily. There may also be a shift toward condos and town houses as the population ages and baby boomers retire and downsize their space wants and needs. There will also be a continuing increase for space in assisted living complexes,” Smith suggests.

“Housing affordability has rarely been better than it is now and credit unions should be prepared to thrive and grow, even with rising interest rates. Mortgage rates will still be very low by historical standards and no one expects a return to the scary economic environment of 1980-1982.  Inflation will stay low for the long term and thus, so will interest rates,” said Smith. The good news is that all of these potential homeowners will need an entity that is willing to provide them with a mortgage, so who better to do just that than credit unions?

Steven Houle, director of advisory services at Catalyst Strategic Solutions, and a speaker at the upcoming Financial Management Seminar, suggests that even with the recent rise in mortgage rates, credit unions are still in a position to benefit. “Member demand might initially pull-back from the “sticker shock” of higher rates, but current levels will provide stronger earnings profiles, and less volume will be needed to match prior earning contributions.  Furthermore, credit unions have more volume than they may realize as the industry sells approximately 50 percent of the first-lien mortgages they grant.  All credit unions need to do is increase the volume they choose to retain,” said Houle.

Smith has been an economist and analyst for over 30 years, having served the Federal Reserve Board, the University of North Carolina-Chapel Hill, and elsewhere, and is an active member of several professional economic associations including the National Association for Business Economics (NABE) and the National Business Economic Issues Council.  He is scheduled to speak at the upcoming Catalyst Corporate Federal Credit Union’s 36th annual Economic Forum in Frisco, Texas, October 22-23. His presentation will cover the implications credit unions will face as a result of a rebounding real estate market.

This year’s Economic Forum, entitled “Recovery and Beyond,” will include a line-up of knowledgeable economists and financial industry experts who will focus on critical issues facing credit unions in the next 12 months and decade to come. To register or for more details, those interested are invited to visit