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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Tuesday, 31 March 2015

Housing credit surges higher again

Housing credit leads again in February

The Reserve Bank released its Financial Aggregates data for the month of February 2015.

The data showed that housing credit continues to lead the way despite a slightly lower growth of 0.5 percent growth in February 2015, recording 7.2 per cent growth over the past 12 months.

Personal credit went backwards in the month of February continuing its soft trend (+0.5 per cent year-on-year), but business credit recorded a respectable 0.6 per cent growth to be up 5.6 percent over the year.


Part 1 - Business credit hits new high

Outstanding business credit increased to a new seasonally adjusted high of $789.4 billion.


In annual business credit growth terms this is the best result since February 2009 when Australian industry became plagued with recession-like conditions, which has been followed by a studious recovery since.


Regular readers will know that I don't rate the widely held notion that business credit is being "crowded out" by lending for housing.

I discussed some of the reasons why not here and here among other places.

My view is that (a) there are many ways to finance expansion today, and (b) as and when business confidence returns to more robust levels, so too will return more robust business credit growth. 

At the upper end of town IPO capital raisings are tracking at their highest level in 18 years with consumer and healthcare listings leading the way cf. the $5.7 billion Medibank privatisation, which was the largest IPO in Aussie equity markets since the initial Telstra offering way back in 1997.

Naturally, my chart below does show that secondary capital raisings are tracking at a lower level than was the case through the financial crisis when there was a great flood of recapitalisation, but look at the aggregate for initial capital raisings go!



Much of the debate on business lending lacks logic - at least according to my social media timeline - calling for a boost to the economy through irresponsible lending to property speculators being replaced effective immediately by...well, irresponsible lending to unproven start-ups and entrepreneurs.

It's not a line of argument that I follow easily - and I am a small business owner myself.

The Reserve Bank subtly revealed a few of its own views on the role of housing as security for business lending as I discussed here last week. 

Anyway, today's brighter news is that as a share of total outstanding credit, mortgages have declined back down to 65.6 per cent from 65.8 per cent in December.

Part 2 - Housing credit surges

Despite this housing credit has continued to surge, with seasonally adjusted outstanding owner occupier credit (+0.5 per cent) yet again lagging the growth in investor credit (+0.7 per cent).

Interestingly, investor housing credit growth of 0.7 percent in February 2015 was the weakest result for the investment credit sector we have seen since fully a year ago in February 2014.


Nevertheless, these continue to be very strong results indeed for housing credit.

Even on a smoothed rolling 12 monthly basis as charted below it is clear that investor credit growth has easily outpaced owner-occupier credit and has been galloping towards a level which the regulator will find uncomfortable.

That said, investor credit growth of 0.7 percent in February implies a somewhat slower rate of growth, and could feasibly represent the first sign of a becalmed market? Maybe...


The latest data relating to APRA ADI's for February 2015 was also released today which reflected similar themes, with investor credit growing at a more sprightly pace than owner-occupier lending.

A number of lenders are growing their investment housing loan book at a rate which exceeds APRA's 10 percent benchmark, most notably Macquarie and Suncorp.

Most of the 8 lenders which grew their investment loan portfolio at a pace faster than 10 percent hailed from outside the "Big Four".

This is not all that surprising giving the colossal existing size of investment housing loan books.

Westpac holds an astonishing $147,576 million of of outstanding investment housing assets on its books, representing a massive 31.7 per cent of APRA's captured total of $465,497 million.

The wrap

Personal credit growth remains in Talking Heads territory (or in Chris Rea territory, depending on your oblique lyrics reference of choice) but February saw a decent enough result for business credit growth.

Housing credit continues to go from strength to strength - if, indeed, that is the right phrase - with investor credit remaining imperious, despite a slightly slower rate of growth in the month.

As at February 2015 the share of outstanding housing credit pertaining to investors hit its highest level on record at 34.4 per cent.

That's more than a third of outstanding credit, a remarkable structural shift from just 14 per cent of outstanding credit just a quarter of a century ago.


One final point of note is that while outstanding housing credit has grown by a little more than 7 percent over the past year to $1.44 trillion, this is absolutely still nowhere by comparison to the $5.4 trillion total estimated value of Australia's dwelling stock.

Consequently household wealth has just hit record highs and the household debt-to-assets ratio is in decline.

Perhaps the role of Chinese investment capital has had a material role to play here?

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