ONTARIO, Calif.–While credit unions think of rising interest rates in terms of the risk they present to their own institutions, rising rates will also affect members, notes one new analysis.
The Fed is widely expected to push rates higher when it meets in mid-December.
“If the Federal Reserve raises rates multiple times between now and the end of 2017 because the economy is relatively strong, the job market is solid, and wages are rising, then consumers can probably withstand paying more in interest on their payments,” said Dwight Johnston, chief economist for the California Credit Union League.
The league has just released its third-quarter credit union financial trends report for California, which reveals a third consecutive year of record demand for loans by members. Households of all incomes continue taking advantage of low interest rates for first mortgages (purchase and refinance), second mortgages, home equity lines of credit (HELOCs), new and used auto loans, credit cards, student loans, business loans, and other loans, according to the league.
The report shows that California credit union membership rose 5% to a record 10.8 million individuals (336 credit unions). Total lending increased 14%, hitting a record $108 billion loaned-out. And total deposits increased 10%, hitting a record $147 billion.
“Higher interest rates on credit cards usually make little difference to consumers unless there’s a dramatic increase,” Johnston said. “Auto sales are somewhat impacted by higher rates, but not too severely.”
But Johnston noted that mortgage activity reacts differently. “While refinancing is already in a steep drop after mortgage rates spiked in November, new home purchases might fare better than you’d expect in a rising-rate environment,” Johnston said. “The California housing market can handle a modest increase. The 30-year mortgage rate would need to rise to at least 5% or above to cause a home-buying slump. There’s also a housing shortage in California just as demand is rising from potential buyers who are finally ready to enter the market.”
Overall, credit unions could end up lending out money in 2017 at the same record pace they’ve been running over the past few years as long as the right dynamics are in place, such as member saturation and engagement, Johnston said.