LEDYARD, Conn. — A diverse set of economists addressing Members United Corporate Federal Credit Union's Economic Forum last week agreed that credit unions' conservative business practices should prove a boon in the current market environment.
While credit unions have not been exempt from feeling the pinch of the current mortgage market problems, the situation also opens up some opportunities.
Kevin Hassett, an economic adviser for two presidential campaigns, noted that the current housing supply is 18 times the demand in a good year, and new-home construction "as deep in the tank as we've ever seen."
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"It's been a test of character for you and you've really come through," Hassett said, highlighting that credit union delinquencies are a fraction of those at banks. He predicted that delinquencies would rise, but credit unions are sure to turn around in this market "because you're the strong actor in a weak place." He also said that auto lending has to pick back up at some point.
David Hale, global economist/chair of China Online LLC, pointed out that as many as 1,000 banks could fail in the next year. Even though the Fed has been dumping liquidity into the markets, it can't address insolvency, he stressed.
Members United's resident economist Nick Perna said it really doesn't make a difference if we're in a recession or a marked slowdown because the Fed is already treating it as a recession. He said the good news is that he expects oil prices will go down as demand decreases (a point Hassett rejected as China and India increase their consumption) and speculators turn away. Hassett agreed on this second point, though he said the increased purchase of oil futures will outpace China and India's expanded usage; thus, the looming flood of sales will place downward pressure on pricing.
The bad news, according to Perna: The decline in housing prices is not slowing and will likely drop 18% overall. However, the recession will be over by year-end, he forecasted.
Responding to an audience question regarding the Treasury proposal to create one regulator for all financial institutions, Perna suggested that while this makes sense from the standpoint of scale, credit unions will want to retain their own insurance fund because their losses are much lower.
Hale agreed, "You want to keep your insurance fund as separate as you can as long as you can."
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