Pete Wargent blogspot

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

'Huge fan of your work. Very impressive!' - Scott Pape, The Barefoot Investor, Australia's #1 bestseller.

'Must-read, must-follow, one of the finest analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of the finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts...most comprehensive analyst I follow in Oz' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

Thursday, 30 April 2015

Investors continue to power housing market

Housing credit leads

The Reserve Bank released its Financial Aggregates data for March 2015 which showed that housing credit growth picked up in the month of March to 0.6 percent to record a forceful 7.3 percent growth over the year.

However, business credit softened in the month to just 0.2 per cent, taking annual credit growth down to 5.3 per cent.

Business credit growth slows

The first chart below shows how business credit has endured a "start-stop-start" recovery from the recession-like conditions experienced by Australian businesses through the financial crisis.

Credit growth appeared to be recovering nicely enough, but then stumbled in mid-2012 in sympathy with a number of offshore shocks at that time.

And we appear to be at arriving at another crossroads for business credit growth right now. 

In annual terms, as noted business credit growth ticked back down to 5.3 per cent from 5.6 per cent, another signal perhaps that a further interest rate cut would be just the ticket.

Stepping away from the data momentarily, surveys have indicated that CFOs may be a littl more willing to take on risk than they were a year ago, but business sentiment seems decidedly undecided right now. 

With inflation well under control, a rate cut would be spiffing, but there may remain concerns about...

Investor credit surging

Housing credit recording another strong result, with owner-occupier credit rising by 5.7 per cent over the past year and investor credit soaring 10.4 per cent higher in seasonally adjusted terms.

The evident lack of slowdown in investor credit growth is a key argument against rates being cut further (in some quarters at least).

Smoothing the housing credit growth figures below on a rolling 12 monthly basis shows that investor credit continues to lead the way with very hearty growth. 

It had seemed that investor credit growth may be hitting a plateau, but the March figures revealed a burly result with investor credit rising in the month by $4.6 billion or 0.93 per cent in seasonally adjusted terms.

If you can "do" maths, you will of course note that this represents an annualised pace of well above 10 per cent, so the regulator has more work to do here.

Finally, the investor share of credit increased to 34.5 per cent, which is the highest level on record.

The way things are tracking, with ever more first homebuyers electing to buy investment properties as a first step onto the ladder, we can expect to see that share heading to above 35 per cent in due course.

The wrap

Following an abysmal print for US GDP and the Aussie dollar spiking back to 80 cents - in concert with an untimely reversal in the iron ore price "recovery" - the case seemed to be building for the Reserve Bank to cut the cash rate again in May.

This Financial Aggregates data tilts the other way suggesting that credit growth to housing investors is powering on unabashed.

10 per cent annual growth in credit may not sound too alarming, and indeed it is not in purely aggregate terms.

But in reality property investors are focussing very heavily on the Sydney market and another rate cut would in all likelihood send investor activity into orbit.


Next up, a look at the US GDP result, which was an absolute stinker, propped up be inventories...