Understanding the economic forces shaping credit union lending in 2026 was the focus of the latest Origence webinar, featuring Steven Rick, director and chief economist at TruStage™. Rick’s analysis went beyond the headline numbers to examine what current conditions mean for credit union growth objectives covering Federal Reserve policy and rate-setting strategy, trends in consumer spending and borrowing habits, and how credit union lending performance compares against both competitors and the industry’s own historical benchmarks. He also offered his outlook on where interest rates may be headed and outlined a variety of recession risk factors that remain in play as 2026 unfolds.
The rate environment and its effect on lending
The Federal Reserve’s target interest rate is 3%, accommodating both 2% inflation and 1% natural growth in population and productivity. An interest rate above this target serves to slow the economy, and while the Fed has gradually lowered rates over the past two years from a high of 5.35% down to 3.6% currently, inflation remains stubbornly higher than ideal and exerts resistance to further rate cuts.
Growth in total consumer credit has rebounded somewhat to a 3.2% annual growth rate, after briefly dipping in early 2025. It remains below the long-run average of 5% due to a variety of influences including those slightly higher rates, amortization run-off of seasoned loans, low consumer confidence, and high uncertainty about the possibility of a recession. Credit union loan growth reflects these headwinds, at 4.1% there is still a gap to catch up with the long-run average of 7.0%. By comparison, bank lending growth is slightly above their average and attributed to a surge in commercial lending.
What’s driving and constraining economic growth
Overall, the U.S. economic growth rate predicted for 2026 is just a tick below the long-term average of 2%. The 2% growth rate has historically been the sum of equal parts, combining productivity growth and labor force growth. The current restrictive immigration enforcement has squashed labor force growth, thus economists are counting on increased productivity to fill the void and be the primary driver of economic growth in the coming year. Labor productivity, which averaged 1.1% growth from 2011-2019, has suddenly jumped to 2.6% growth over the past two years, corresponding with the introduction of recent AI advances.
Rising stock prices are creating a wealth effect for high-income households and driving what economists are calling a “K-shaped” economy, one of which 50% of consumption is attributed to only the top 10% of income earners. The S&P 500’s Shiller Price-to-Earning (P/E) ratio sits near 42, well above the long-run average of 27. Higher earnings may be the path to restoring P/E ratio normalcy, with AI playing a potential role by increasing productivity and reducing expenses sufficiently to bring that ratio back down.
Economic risk factors to watch
A variety of risk factors could interfere with maintaining today’s U.S. economic growth at or above the long-run average. Worsening trade wars or a decrease in stock and home prices are among the threats, along with the possibility that the Federal Reserve might move too slowly to reduce rates. Global conflicts including Ukraine and Iran are potential factors, along with a possible rise in energy prices. Lower-quality office property is a distressed market, with occupancy, rent, and property values all declining, limiting refinancing options.
Vehicle lending and consumer credit: A market in transition
Seasonally adjusted new vehicle sales in the U.S. are expected to reach approximately 16 million for 2026, just slightly below 2025 and still short of the 17 million needed to achieve market equilibrium. New and used vehicle prices have come down from post-pandemic peaks but continue to grow at a modest 0.5%, well short of the Federal Reserve’s Core CPI target of 2.5%. New car prices are driving that incremental growth, while used car prices remain in slightly negative territory.
Credit unions new car loan balances, which typically average 5% growth, are currently running at a -5% rate. Used car growth is showing early signs of recovery, after an extended period of contraction through 2024 and 2025, balances have risen 0.5% in the most recent quarter, though still well below the 7.7% long-run average. In both cases, the high volume of lending in 2022 and 2023 continues to create a denominator effect on current balances. Credit card loan growth tells a similar story, returning to near-flat at -0.1% in the most recent quarter after a period of negative growth.
Real estate lending: The strong performer
Home price appreciation saw a dramatic spike a few years ago, peaking at 18.8% in 2022. It fell to 1.9% in the fourth quarter of 2025, still in positive territory but well below the 4.1% long-run average. At the same time, the average age of a first-time homebuyer is now 40 years.
Real estate lending remains a strong performer for credit unions. Fixed-rate first mortgage loan growth has climbed to 4.9%, a three-year high. Adjustable-rate first mortgage loan balances are growing even faster for credit unions at 13.5%, consistent with several years of double-digit growth for this segment. Home equity lending continues to outperform averages, driven by rising real estate values and homeowners’ desire to preserve their low first-lien rate. Home equity balances are expected to grow at 15.9%, nearly double the 8% long-run average.
Loan performance: A broader normalization
Credit union loan performance reflects a broader normalization underway across the industry. Delinquencies remain slightly elevated at 1.02%, compared to a natural rate of 0.75%, and with unemployment near 4.5%, the threshold economists consider full employment, net charge-offs stand at 0.83%, just above the natural rate of 0.5%. A portion of this can be attributed to the unwinding of pandemic-era programs that had temporarily supported credit performance. The expiration of several programs including stimulus payments, extended unemployment benefits, foreclosure moratoriums, and loan forbearance, are now catching up with consumers.
In addition, falling real wages and higher prices are affecting low-income households, as is rent inflation. Lower-quality jobs and higher costs for credit and insurance are putting additional pressure on creditworthiness among low- to moderate-income households and are expected to drive most consumer credit losses. Student loan repayment resumed for many consumers in 2023, and the inflated cost of vehicles in 2022-2023 may result in underwater borrowers walking away from auto loans.
Inflation and the rate outlook
Inflation remains a consideration for the Federal Reserve, with pressure on personal consumption expenditure coming from multiple directions including global conflict, disrupted supply chains, pass-through tariffs and a tight labor supply. As long as inflation holds above the Fed’s 2.0% target, the potential for additional rate cuts remains uncertain. Unchanged rates are still the most likely outcome in the near term, though the possibility of a rate increase has entered the discussion. Consumer confidence and sentiment indices have declined to levels near or below those typically associated with a recession.
The outlook: Measured growth and improving returns
Credit union loan growth is expected to reach 5.5% in 2026, still below the 7.0% long-run average but a full percentage point above the prior year, with steady modest growth in 2027 to 6.5%. CECL changes to the expected credit loss model have established a new normal for the industry, and credit union allowance for loan losses has remained essentially flat for the past three years since the change. Net income is forecasted to reach 80 basis points in 2026 and 82 in 2027, putting it above the long-run average of 79 for the first time since 2022.
Looking at the broader picture, below-trend economic growth of 1.9% is the expectation for 2026, with inflation remaining above target for the next two years and unemployment near full employment of 4.5%. A 25-basis-point reduction in short-term interest rates in 2026 has not been ruled out. Credit unions should expect modest loan growth of 5.5% and a slightly greater return on assets, rising to 80 basis points.
