The California Bankers Association and Beacon Economics Release California Banking Industry Intelligence Report
Report provides a review of the bank lending environment and state of consumer finances for 2014
Sacramento, Calif. — The California Bankers Association (CBA) and Beacon Economics have released a sixth California banking report that examines important issues currently affecting California’s banks and the overall economy. The report is authored by Chris Thornberg, Ph.D., founding partner, and Jordan Levine, economist and director of economic research, at Beacon Economics. This report begins with an economic overview of the nation and of California, and then takes a closer look at the state of consumer finances and bank lending trends. Among the report’s key findings:
- Beacon forecasts that the California economy will continue to lead the national economic recovery, with growth picking up in 2015 and 2016, before settling into “normal” rates of growth thereafter.
- California’s residential (and to a lesser extent) commercial real estate markets have again become a source of economic strength – through September 2014, California averaged a 14.9% annual growth rate in home prices.
- Consumer finances in the U.S. have shown relative improvement since the end of the Great Recession. From 2010 to 2013, consumer leverage ratios – total household debt to disposable income – declined nearly 11% to 14.6%. Overall median family debt levels have fallen more than 20% since 2010.
- Significantly low interest rates over the last few years have also improved the consumer’s financial obligation standing. As of the second quarter of 2014, the Federal Reserve reported a total debt service ratio of 9.9, meaning it takes less than 10% of a household’s disposable income to service its debt obligations. That number was 13% in 2009.
- Despite overall reductions in the cost of consumer debt, families have an increased appetite for debt associated with installment loans, particularly education loans. From 2010 to 2013, the median family debt related to installment loans increased 8.1% to $14,600. In addition, the proportion of total family debt associated with installment loans now comprises 13.1%, compared to only 11.1% in 2010. This is in contrast to the decreased proportion of debt associated with secured residential property and credit card balances.
- The number of distressed mortgages continue to plummet across California, with double-digit reductions in both defaults and foreclosures through the first nine months of 2014.
The report also notes that the pace of bank lending in California has outpaced that of the U. S. in a variety of loan categories. In particular, construction and land development loans in California, which grew by 22.4% from the first two quarters of 2013 to the first two quarters of 2014, easily outpaced the national growth rate of 6.9% over that same time. California bank lending is also outpacing the nation in a variety of real property loans including commercial real estate loans, multifamily residential, and 1–4 family residential loans.
“We are very pleased to see California’s banks continue to increase their lending, and support our state’s impressive economic recovery, which continues to outpace the nation’s recovery,” said Rodney Brown, president and CEO of the CBA.
The report concludes with observations from the authors about the recent announcement from Fannie Mae and Freddie Mac to purchase mortgages with down payments as low as 3%. According to the new rules, these loans would be allowed only for fixed-rate mortgages on single-family homes that would be the borrower’s primary residence and would require full documentation of the ability to repay the mortgage. A low down payment coupled with fairly strict lending standards is targeted specifically at potential homeowners with proven credit worthiness but who are in the lower to middle-end of the income spectrum.
“This is a calculated move by Fannie Mae and Freddie Mac to move towards slightly looser standards without being perceived as moving the needle too quickly or recklessly. Thus, the move will provide some modest boost to the housing market, but because of its limited reach, is far from a panacea,” concluded the report’s authors.
Please contact Beth Mills to schedule a media interview with the study authors.
About the California Bankers Association (CBA)
Established 124 years ago, the California Bankers Association (CBA) is one of the largest state banking trade associations in the country. CBA leads the way in developing relevant legislative and educational solutions to some of California’s more pressing financial and banking issues, including financial empowerment, identity theft, financial privacy, and financial elder abuse. CBA’s membership includes the majority of California’s commercial, industrial and community banks and savings associations. For more information, visit www.calbankers.com.
About Beacon Economics, LLC
Beacon Economics, LLC is an independent economic research and consulting firm with offices in Los Angeles and the San Francisco Bay Area. The firm delivers economic analysis and data sites that help their clients make informed, strategic decisions about investment, growth, revenue, policy, and other critical economic and financial issues. Their nationally recognized forecasters were among the first to predict the collapse of the housing market and foretell the onset and depth of the economic downturn that followed. Core areas of expertise include economic and revenue forecasting, market and industry analysis, economic impact studies, economic policy analysis, and international trade analysis.