PLANO, Texas - One of the earliest barometers for the health of credit unions is their respective corporate CU. And in that case, Southwest Corporate FCU is reporting Lone Star CUs seem to be doing better than many of their counterparts nationally, thanks to a number of factors.
Prices may be declining, but Texas has largely escaped the foreclosure and subprime loan problems in states surrounding it, such as Arizona, Nevada and Florida, and the state’s oil industry, a source of previous busts, has been enjoying a boom.
A Slower Pace
Compared with a national economy that has many U.S. markets sliding into recession, economic performance in Texas is declining at a much slower pace, according to Southwest Corporate and individual reports to CU Journal from Texas credit unions (see related stories, 32-33). Many in the state feel more confident about their own operations than they do the balance sheets of competitors and even peers, according to one study.
“Texas is feeling the effects from the overall slowdown in national economic activity,” confirmed Bruce Fox, EVP and chief investment officer at Southwest Corporate. “At least currently we are weathering the storm better than the overall U.S. economy.”
That economic slowdown, however, presents opportunities for Texas CUs to improve the bottom line, according to Fox. Credit unions that will outperform others–especially if the economy worsens–are those that manage expenses well and get good quality, high-yielding loans on the books.
“There are opportunities, especially in the Texas market, because we don’t have over-priced housing,” Fox said. “We expect housing prices will decline in the next 12 to 18 months, but the severity of the decline when compared with the national market will be a lot less.”
Fox says Southwest Corporate sees an opportunity for CUs to work with members who are struggling with mortgages from other financials, and provide refinancing.
“Frankly, it’s getting more difficult for credit unions to continue to grow their loan portfolios to the level they want by just looking at new and used autos,” he said. “That market will be soft for the next couple years.”
Plus, the economics of mortgage transactions are much better now with yield curves steepening, Fox said.
“Credit unions can underwrite a 6% APR, 30-year fixed rate mortgage now, and the spread between their cost of funds at 2% and that 6% coupon is significantly wider than it was two to three years ago when we had a relatively flat yield curve,” he pointed out.
What’s kept the Texas economy performing above much of the U.S., says Fox, is that a “large percentage of our state’s GDP–greater than most states–is tied to the oil and gas industry. With natural gas and oil prices surging in the last 12 to 18 months, that’s opened up a lot of production in those sectors and generated new jobs and income growth.”
That growth has helped housing prices remain stable, Fox says, keeping demand for homes fairly level with inventories. “And home prices never inflated as they did across much of the U.S. When you look at the housing market, the home price appreciation in Texas markets is half that of the national average.”
Stable Home Prices
Stable home prices have helped prevent the large number of foreclosures much of the U.S. is seeing, Fox said. With the unemployment rate dropping in the state, consumer confidence is up.
“If you look at consumer confidence surveys in Texas and compare those with the U.S. aggregate, you’ll see consumers in Texas feel a lot more confident about their future. If our consumers are more confident, they are going to spend more than on the national side.”
Despite the optimism, Texas credit unions are being cautious, looking more toward short-term investments with Southwest Corporate.
“Most of the certificates we have been issuing are relatively short, six to nine months and in,” Fox said. “When credit unions used to move money out of cash it was in the one- to three-year investment horizon.”
