Let's Talk Loans - Vol. 69
Welcome back to Let's Talk Loans. Let's hope this is the "last rate hike of this cycle" edition! (If you remember Vol. 50, this might sound familiar) If you're looking to dive deeper into the world of lending, you've come to the right place. What's trading and trending on the minds of community and regional bankers. I hope you enjoy the content and please share / subscribe with a peer.?
Some Fed speak this week. We heard from Powell and the "skip" is back, not the pause. The good news is we did not get a 25bps hike this time around and the market responded positively with that bit of news.
The negative to this news is more the expectation of what's to come. Due to the continued strength of the economy, it's the forecast that splashed cold water on the market. With each consecutive Fed meeting this year "higher for longer" is changing to "not much higher but for even longer". You can see in the below graph how the market continues to price in higher rates through 2025.
As such - rates have spiked. The 2 year is right around 5.10% and the 10 year is north of 4.40%. That's taking us all the way back to 2006 levels.
I very much enjoyed this WSJ article on the impact of these higher rates on the consumer. As I write these articles I often find two very different tribes. Those that are certain the downturn is upon us. Others that are more glass half full, optimistic and feel there is some room to run.
Are rising rates a death by a thousand cuts? Looking at mortgage - mortgage payments are now roughly 40% of annual income.
Savings are starting to erode. We're still spending at strong levels but might that start to recede now that savings are dwindling and student loan payments are coming back?
Vehicle values have shot up. Payments are now somewhere in the $725 a month and terms have extended. Is that a potential sign of future distress?
Continuing on auto lending - Experian came out with their Q2 Auto market update. Last year credit unions were doing a victory lap on being the best originator in the country. What they didn't realize is they just had not raised rates quick enough. We're now seeing that progress reverse course as we feel the liquidity get drained from the system.
Note the huge coupon jump in new loans. From 4.60% last year to 6.63% in Q2 2023. Rates continue to rise and we continue to encourage clients to be aggressive here.
Used cars are also on the up. Note an even more significant jump in rates here. From 8.84% to 11.38%. Most of you are still at 8.84% and haven't made it to even 10%. Keep fighting the good fight.
It was great to see everyone in Vegas this week at NAFCU CFO. Conference season is officially upon us! Thanks to everyone, clients, speakers and Olga Kurochkina and Josie Collins from NAFCU in putting on a great conference.
Lastly - I mentioned this last week but the Street Talk podcast is now live! Give it a listen and have a great weekend. Nathan Stovall , Victor Calanog PhD CRE FRICS , Hamilton Fout , Leonard Kiefer , Cristian deRitis , Michael Fratantoni , Brian Ford, CFA , Eric Neglia , Frazer Gieselmann , James Armstrong , Amy Martin , Rebecca Bacon , Jamie Woodwell , Renaud Laplanche