All about affordability

Vice President of Data and Research and Chief Economist Curt Long breaks down the financial situation for consumers and what it means for credit unions.

Consumer sentiment and general trends

Long reveals that overall consumer sentiment is “not a pretty picture,” as it sits near an all-time low. However, he adds that the hard data, such as Gross Domestic Product (GDP) and inflation, show an economy that is performing relatively well.

“One hypothesis is that even though the economy may be performing well in the aggregate, it’s mostly well-off households that are benefitting,” he says.

On the other hand, the Federal Reserve of Atlanta’s data suggests that even lower-income consumers are doing better than they were a couple of years ago. They have seen their assets rise faster than their debts, and borrowing costs have declined.

“This is not to say that the bottom half of households are doing as well as they should be,” Long says. “Nor to ignore the real financial struggles of countless households across the country. Far more people live on the margins than they should, which makes credit unions’ mission of serving their 145 million members all the more important.”

He notes that one idea for why consumer sentiment is low in this economy is perception. Long says that consumers may want prices to return to levels before the inflation surge in the early 2020s, rather than just a slowing of price increases.

Recent inflation data has also shown a trend towards the Federal Reserve’s goal of 2%. Long notes that America’s Credit Unions expects inflation to hit the 2% mark by 2027.

Homeowners vs renters

Long says that the biggest divide is between homeowners and renters. Homeowners were more likely to report a positive sentiment of the economy compared to renters.

“One benefit of homeownership—especially with a fixed-rate mortgage—is to lock in a large percentage of your budget,” he notes. “When you go through a period of high inflation, it drives home the fact that if you do not own a home. Your financial situation is exposed to economic conditions in a way that homeowners are not.”

He expands this idea by pointing to the issue of housing affordability, which was also the focus of the January Economic Update.  

The credit union difference

Given all the economic difficulties consumers are talking about, he points to credit unions as a solution. Exquifax data shows that credit union members save thousands of dollars when borrowing compared to borrowers who use mortgage companies or bank financing.

“So is this a broad, sweeping affordability crisis,” he asks. “The hard data tells us, not really. But that doesn’t change some of the factors that credit union members are worried about. Yes, the situation with rising prices is leveling out. And home prices have flattened. But today’s borrowing costs keep the barrier of entry high.”

While he says that credit unions don’t have an avenue to change the underlying issues, he calls on them to continue their work as the most affordable provider of financial services on the market.

Watch the full Economic Update:  

Find all the Economic Updates and access data and tools to help you tell your credit union story .