Red Hot Loan Market Cooling as Interest Rates Rise & Savings Growth Slows

Robert Eyler

From San Diego to far Northern California, and from the coastline to inland regions, loans to consumers and businesses across the state have been accelerating for most of 2022 at high year-over-year rates in many localities while deposit growth noticeably declined. However, this recent rapid loan growth is quickly slowing down going into late 2022 and early 2023.

As 272 locally headquartered credit unions and their 13.1 million members across various counties within the Golden State blew through mid-year 2022, annual savings growth in deposit accounts versus loan growth (auto loans, mortgages, credit cards and other products) were taking very divergent paths from January to June of 2022. Overall lending growth had been red hot, but this trend is most likely cooling in the second half of 2022 as consumers head into the holiday season and a new year. This is on top of savings growth already slowing down much earlier this year as annualized inflation continues.

Local California credit union CEOs and boards of directors are well aware of these and other recent trends all emerging at the same time, including quick and drastic short-term interest rate increases by the Federal Reserve, as well as many economists continuing to forecast economic volatility well into 2023.
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“Yearly loan growth at several financial institutions — many credit unions and banks alike — should start noticeably slowing down as we transition into late 2022 and early 2023,” said Robert Eyler, economist for the California Credit Union League. “2022’s hot loan growth for much of the year was probably a sign of consumers trying to borrow before interest rates go even higher. Many consumers had rising-rate expectations throughout 2022 and attempted to lock-in rates on loans while they were relatively low. That’s changing.”

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