How Much Did the Real Estate Slowdown Impact Credit Unions?

The real estate market finally slowed in 2006, but the results for credit unions are not as daunting as anticipated.


Statistics on the real estate market in 2006 seemed to signal an end to an incredible run in the market. A few of the key numbers include:

  • Existing home sales down 8.4%
  • New home sales down 17.3%
  • Median home price down 2.7%
  • Average rate on the 30-year fixed rate mortgage up 50 basis points from 2005 to 6.4%
  • Average rate on the 1-year ARM up 100 basis points to 5.5%
  • Mortgage originations on 1-4 family residences down 17%
  • Delinquencies on residential real estate held by banks rose to 2.1%, the highest rate since 2002

Sources: National Association of Realtors, Mortgage Bankers Association, Federal Reserve

Resilient Credit Unions
Credit unions experienced a slowdown as well, though the results are not nearly as daunting as the above numbers would indicate.  First mortgage originations were down 10% versus 2005, a smaller decline than the market.  Other real estate loan originations such as home equity loans posted an increase of 1.9%.  On the balance sheet, first mortgages outstanding rose 11.7% while other real estate loans outstanding rose 11.8%.

Against the backdrop of headlines about the faltering subprime mortgage market, the real estate portfolio for credit unions remains healthy. Although the delinquency rate on both first mortgages and other real estate loans did increase, the 0.35% and 0.32% rates, respectively, are up just 8 basis points from year-end 2005 and well below the 2.1% delinquency rate reported by the Federal Reserve for banks.

Need to Adapt
The more significant issue for credit unions is their ability to adapt their real estate lending strategy to a new environment.  Real estate has had an unprecedented run throughout the decade and a slowdown was inevitable.  Credit unions picked up market share in 2006 despite the slowdown.  However, the $54.4 billion in first mortgage activity represented just 2.2% of the U.S. market.

The Credit Union Housing Roundtable has set an objective of increasing credit unions’ market share from 2% to 10% in 10 years.  To capture another 1% in 2006 would have meant an additional $25 billion in originations.  Sound unrealistic?  The fact is that credit unions originated exactly that amount, $80 billion, in 2003, so they have already demonstrated that they can handle this level of mortgage activity.

While there is still a question as to whether the housing market has bottomed out, indications are that credit unions continue to manage a strong portfolio and are well positioned to capture more volume as many mortgage lenders scale back their activity.  The key will be capturing more of the purchase market, which is much less volatile than refinancing activity.

One credit union that has developed a product to reach out to this market is State Employees in North Carolina.  Their first time homebuyers program lends 110% of the appraised value but puts the additional 10% in a CD at the same rate.  Developing partnerships with real estate agents, mortgage brokers, and community housing initiatives will also be important to the success of this effort.

To hear more about year-end performance and credit union successes, join us for Trendwatch.




March 5, 2007


  • While volume for credit unions was down overall last year, we beat the overall market. That's great progress. The goal to reach 10% share in 10 years is realistic, and Jay is correct: it will take new strategies, with a significant emphasis on all aspects of the purchase market.
    Dan Green