LAS VEGAS — It's fitting credit unions from California and Nevada will be meeting here this week.
The city that figuratively and financially symbolized the real estate boom has been hit hard by the housing crash and a painful, ongoing recession, the likes of which haven't been seen since the Depression, when those down on their luck, looking for a new start or seeking a fortune began coming to this city in the desert.
With the California and Nevada Credit Union Leagues' hosting its annual convention, CU leaders in both states who have been managing through tough times are hopeful any signs of recovery don't have something in common with the hotel in which they're meeting: a Mirage.
When will the recession be "over" for the Las Vegas area? California's Central Valley? Or the Inland Empire region of Southern California? When can CU members in the Golden and Silver States expect a meaningful recovery? According to most economists and CU industry insiders contacted for this Credit Union Journal Special Report, the worst seems to be over, but dangers still lurk and any upswing in the economy is months away.
Daniel Penrod, senior industry analyst for the California and Nevada CU Leagues, said while the two states are suffering from "similar maladies," the cures will be different.
"In Nevada, the improvement in the national and worldwide economy will help it faster than California," he told Credit Uion Journal. "In Las Vegas as more conventions book, there should be improvement. But it will be a gradual recovery; there won't be a big bounce. Things are better and will be better, but on the street it won't feel better. The numbers will be showing positive growth, but things won't feel as good as figures show as long as unemployment persists at high levels."
"There is not going to be a silver bullet where everything is better everywhere," Penrod continued. "There is so much slack in the economy, we are probably looking at the second quarter or third quarter of 2010, when the unemployment rate finally drops and things start picking back up. There are some positive signs in the market, and other things have stopped getting worse, which is good because before things get better things have to stop getting worse. Eventually, we will see the upward climb."
Bill Cheney, president and CEO of the California and Nevada CU Leagues, said he has heard anecdotally that credit unions are starting to see an improvement-although not in every credit union and not in every area.
"As long as unemployment remains high, it is hard to have much of a recovery when people area out of work," he noted. "Things are a lot better than just a few months ago, but we are not out of the woods yet. It is going to be a long, slow recovery. We need to see job growth before there is a real recovery."
Cheney noted California and Nevada CUs are leading the nation in loan modifications, representing one-third of the $3-billion in loans that have been reworked by credit unions nationally "That's pretty remarkable," Cheney declared. "At a time when the White House and Congress are criticizing banks for not helping people, credit unions are bending over backwards. I've been pleased to see it. Just about every credit union is doing what it can to try to help their members get through tough times."
Home Prices Still Major Issue
Penrod said the struggles of the Inland Empire have captured the media's attention because it is adjacent geographically to Los Angeles and Orange Counties. He said home prices there reached a point where they were comparable to those counties, especially in Corona, a border city.
"The Inland Empire collapsed because the run-up was not built on job growth or industry growth, it was simply real estate speculation," Penrod assessed. "There was a significant amount of building-some would say overbuilding. Once the investment dollars left the area, it was not able to sustain on its own."
To a lesser extent, Las Vegas also saw speculation. Penrod said the troubles in Nevada were exacerbated by the recession, the depth of global breadth of the recession.
"That really impacted the gaming and tourism industries, which make up the large portion of the economy for Nevada. Also, Nevada got an undeserved stigma when Wells Fargo was going to have its banquet in Las Vegas when the bank was asking for TARP funds. There was a public display by lawmakers that characterized Las Vegas as extravagant. Conventions are something Nevada is known for, and does very, very well, and that really dragged down the economy there. Las Vegas is a global destination, and people stopped visiting as frequently. The combination of factors has really been devastating."
On the lower end of housing in California and Nevada there has been some movement, Penrod said. There are more sales and even competing bids for homes, which he characterized as a "huge sign" for the industry.
"We have seen the return of the investor on the low end, plus the first-time homebuyer tax credit has been successful in spurring the market. Employment will be a key factor in sustaining any improvement. People who lose their homes cut back on spending, and they are unlikely to be in the market for a mortgage. Even those who remain employed sometimes fear being 'next' and also do not look to purchase a mortgage. If you don't have a job, you don't have the money to spend. You can only live so long on your credit cards."
Consumer confidence is "slowly trying to come back," Penrod said. Over the last couple of years, attempts to get consumers back to relatively normal spending levels by the promotion of little signs here are there have caused "fatigue." He said people keep hearing about "little positives that are supposed to pull us out, but all the while things get worse. That being said, we are a nation of consumers, and the likelihood is once the consumer believes that the light at the end of the tunnel is there, things will come back pretty strong. People have been building up their savings, which in economic terms is future spending. Once things turn around, spending will pick up."
The unemployment rate in Nevada for August was 13.2%, rising slightly to 13.3% in September. Penrod said there is a slight positive in the fact the rate went up by only a tenth of a percentage point, whereas in prior months there were half-percentage-point and even full-percentage-point jumps.
Unfortunately, Penrod explained, unemployment is a lagging indicator-meaning it is a number that comes back slower than other economic indicators. "So looking at unemployment to see when the bad times are over is akin to looking in the rear view mirror while driving your car-you won't know until you are already past it," he quipped.
It is important for CUs to remember, Penrod said, people on Main Street are looking for safety and security. "They are looking for individuals and organizations that can help them. Those that are able to provide that help are well-positioned in today's market. Credit unions are in an excellent position as an industry because they are known as conservative, safe institutions.
"The economy is not a speed boat, it is an ocean liner," he added. "Movements are slow and steady; it can't turn on a dime."
Identifying Solutions
Cheney said the California and Nevada Leagues have worked tirelessly during the crisis to assist their member CUs. He said advocacy efforts have been "very active" in Washington and Sacramento. The Nevada legislature is not in session, but Silver State lawmakers are holding hearings and there is a "lot of activity," he reported.
"We are letting policy makers know credit unions are doing the right thing, and that we did not cause this problem. We are fighting numerous battles with regard to legislative reform, and we work very closely with CUNA and Sen. [Harry] Reid in Nevada on the 21-day notice act. We will have a number of sessions at the (annjual) meeting to help credit unions get through this crisis. We are working very closely with our members to try to identify solutions."
According to Cheney, the tone of meeting will be positive. He said he thinks for the most part, California and Nevada "are starting to see the light at the end of the tunnel, so I think people will be hopeful. We are a long way from normal, but are out of the freefall. People are feeling better about the economy, as evidenced by what the stock markets have done recently. As overall sentiment improves, that makes people feel better. I think we are on the road to recovery. Everyone is scared right now, people are talking about a double-dip recession, but once it does start to recover California and Nevada have very resilient populations."
Asked about the possibility of a second decline into recession, Cheney opined it would require "some sort of external shock, such as a global calamity or an act of terrorism, but I don't think it will be a fundamental part of the economy. The biggest threat seems to be another wave of foreclosures if adjustable-rate mortgages reset. Some very smart economists are predicting that, and I'm not an economist, but I think as long as interest rates remain low we should be OK."
