ONTARIO, Calif.-California is seeing solid signs of recovery from the economic downturn-especially along its coastal regions-but Nevada is "still struggling."
"Where you stand depends on where you step, meaning if you are in coastal California, you will experience different things than the valleys and the Inland Empire," said Daniel Penrod, senior industry analyst for the California and Nevada CU Leagues. "Conditions have stabilized in the San Francisco Bay Area, Los Angeles, Orange County and San Diego. There is some growth in the Inland Empire in terms of the credit unions there turning a profit, which is a very positive sign that has been a long time coming. Getting back to normal is a long-term process, but some of the healing may have already begun."
Penrod told Credit Union Journal the Inland Empire region of Southern California is "very reliant" on transportation and warehousing. Because those portions of the economy have picked up, the logistics industry has really benefitted and the hope is that will continue.
Different Story In Nevada
"Struggling" Nevada is another story.
"Nevada is still dealing with tourism issues, a poor real estate market and high unemployment," he said. "The state is still looking for a stability point. Because Nevada relies on domestic and international tourism, and with many issues in Europe, it is being hit by a double whammy."
Historically, the housing market in California was split in a north-south geography. But Penrod said the downturn changed the split to coastal versus non-coastal. The coastal regions of the Golden State have fewer distressed properties and are doing "a lot better" than their non-coastal counterparts, he noted.
"Housing in California is likely to continue to bump across the bottom in 2012," Penrod said. "There are still deals to be had along the coast, so until those dry up people won't look inland. The inland valleys won't see enough of a surge to buy up all the overbuilding that occurred during the boom. The growth will trickle inward from the Pacific Ocean, which is the norm. The coastal counties are approaching a normal market, but unfortunately the inland areas are not likely to get back to normal transactions for a few years."
Nevada will benefit from a global economy boom when the numerous problems get settled, Penrod said. "Once jobs start coming back, demand for housing will increase. Housing in Nevada will be contingent on employment growth."
Employment "will be a key for credit unions in 2012," Penrod declared, especially those that serve specific SEGs.
Two Scenarios
Penrod said there are two interest rate scenarios to watch in 2012.
Scenario One: if rates rise steeply and quickly, it could put CUs in a position where they are struggling on the income side and it would put stress on their balance sheets, Penrod said.
Scenario Two: if rates stay low for an extended period of time, or even flatten more, credit unions "also could find it challenging on the income side" if loan rates continue to fall.
"If we get a gradual increase, then financial institutions will be able to keep pace," he said. "From what we have seen, rates will remain muted. I will be surprised if they grew too quickly. The bigger threat is, with the economy so fragile, if something were to spook the economy again and rates were to compress even more, it would probably pose a large hurdle for the industry."
Unfortunately, Penrod said the most likely employment picture is slow improvement, but not the big jump everyone is waiting for. He said the 2012 presidential election will not be impactful on employment one way or another; the overall economy is the key.
