The need to diversify your loan portfolio: Key takeaways from Empower U 2024

From inflation to interest rates to the housing market, economic factors have been making headlines for months. In CU Student Choice’s virtual Empower U conference, credit union economist Bill Hampel recently recapped economic trends and offered timely insights into what credit unions and consumers can anticipate in the coming year.

Here are a few of the key takeaways from the informative event, which is also available on-demand.

Why a recession hasn’t happened (yet)

Despite increasing inflation and an inverted yield curve, which led most economists to forecast a recession in 2023, the economy is likely to remain strong for at least the next couple of years, according to Hampel. Why did the experts get it wrong? Many rules of thumb and leading indicators of an impending recession have not been as reliable in the aftermath of COVID.

Attitudes have changed on everything from remote work to business travel, which still hasn’t returned to pre-pandemic levels. During COVID, households accumulated enough excess savings to buffer them from what would have otherwise become recessionary forces. “When households are spending, we don’t have recessions,” said Hampel.

However, looking ahead, that excess saving has been largely depleted except for high-income households, providing less of a buffer against a recession down the road.

An evolving landscape is impacting lending

Other factors such as automobile sales are also shifting and are no longer keeping up with the overall population.

A couple of factors are driving these long-term changes. The quality of cars has been steadily increasing, which means consumers don’t need to replace their vehicles as frequently. Younger consumers are not buying cars as much as they used to due to the convenience of ride share services like Uber and Lyft. “We are not going to return to the level of auto sales per member we enjoyed 10-15 years ago,” said Hampel.

Therefore, credit unions will need to look for other ways to make loans beyond their core auto loan portfolios, according to the economist.

On the mortgage side, rate locks have shielded many consumers from interest rate increases as they’ve hung on to their historically low 30-year fixed rate loans. Over 60% of mortgage holders have rates of 3.75% or less. Understandably, these consumers haven’t wanted to sell their homes, effectively shutting off the supply for existing home sales. With new homes effectively the only game in town, residential construction has continued to be very strong.

Higher interest rates have also had an impact on consumer loans in general as year-over-year totals have essentially remained flat with no growth in total balances outstanding.

What this means for credit unions

According to Hampel, the Fed will likely continue lowering rates through next year with the terminal fed funds rate expected to sit at or slightly below 3%. “The 10-year rate will likely stay where it is now. This doesn’t mean long-term rates are going to fall,” he said.

Even with lower short-term interest rates, both car loan growth and mortgage loan growth are expected to remain lower than they have been historically for the reasons discussed above.

“Credit unions should be thinking about other sources of loans for their portfolios like student lending and business lending,” said Hampel.

Expand your loan offerings for 2025 now

CU Student Choice makes it easy to get started in the private student lending space. Our private education line of credit requires a low lift for a high return with affordable rates set by each credit union partner. Contact us to learn more about how CU Student Choice can help you offer customized student lending solutions that benefit your current and future members.