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Saturday, 13 June 2015

Lending finance soars to a 7 year high

Upbeat news

A compelling couple of days indeed for economic data releases, then.

First and foremost, the Labour Force figures showed that the Australian economy has added 234,000 jobs over the past year, as I analysed in a little more detail here.

When we get such strong results commentators tend to declare that they are "too good to be true" - the figures must be wrong - and this month was no exception, of course.

I haven't gotten around to reading the market commentary on the April Lending Finance data yet (in truth, they don't get all that much coverage in the media) but I imagine these must be too good to be true as well, since in the event April proved to be a massive result - one of the strongest ever.

Yesterday's Lending Finance figures from the ABS showed that April was one the biggest months on record for lending in Australia.

On only two previous occasions have we seen more substantial lending data in an individual month.

You invariably get accused of hubris for pointing these things out, but what can you do? Them's the numbers. 

Let's take a look...

7 year high for lending

The April Lending Finance figures revealed a thumping $75.7 billion of lending in the month.

This was the strongest monthly result since waaaaay back in January 2008, and tantalisingly close to the all time record monthly lending figure which breached $78.4 billion back in June 2007.

The nature of this data series is that the monthly figures tend to jump around quite a bit, so I prefer to look at the figures on a rolling annual basis.

We already know that owner-occupier housing finance has increased in a robust manner, up by another 3.1 in April and by 9.3 per cent over the past year on a rolling annual basis, a typical and rational enough response to ultra-low mortgage rates.

Commercial finance increased by another 4 per cent in April and is now up by an even stronger 13.8 per cent on an equivalent rolling 12 monthly basis.

This takes rolling annual total lending finance 11.9 per cent higher over the past year.

Lower interest rates have clearly encouraged investors and homebuyers into the real estate markets, and businesses have evidently become more inclined towards borrowing and refinancing too.

Here's the chart:

Investment pipeline weak

So what's the downside, given that we've just had the third largest month of lending on record? 

The answer is that both capital expenditure plans and the investment pipeline are weak.

Total capital expenditure is broadly expected to fall by nearly 25 per cent from $149 billion in 2014-15 to just $104 billion in 2015-16.

This implies that the increase in commercial lending may well be on shaky ground if investment plans don't pick up, which they may or may not.

I've always preferred looking to the "actuals" versus "expecteds" when it comes to capital expenditure and other ABS data.

This is largely because I know how perfunctory certain of my own submissions were back in my Group FC days, particularly on expected capex, which - let's face it - is very much an art rather than a science.

Never missed a deadline, though!

Personal and other credit

Lease finance has increased sharply by 13.2 per cent over the past year.

While on the subject of credit, data released by the Reserve Bank of Australia revealed that the average credit card balance has declined by 1.2 per cent over the past year, and the average credit card limit declined by 0.4 per cent in April too.

This underscores the fact that with mortgage repayments having fallen to remarkably cheap levels, households are shoring up their finances and enjoying getting well ahead on mortgage repayments instead.

Average credit card repayments tumbled from $1,704 in March to $1,538 in April, and remarkably the proportion of credit card limits utilised has plummeted to its lowest level in 13 years.

Small wonder that mortgage arrears and loan impairments are also tracking close to their lowest level in years.

Property investor loans

On of the interesting sub-sets to this data series is the breakdown of property investor loans by state.

I've smoothed the data again below on a rolling annual basis.

I know people like to argue that theoretically interest rates don't drive or impact property markets, but, hell's bells, just look at the chart!

Presented in this manner, investor loans in New South Wales have exploded 32 per cent higher over the past year.

And in fact on a rolling annual basis property investment loans have increased almost everywhere, including in Victoria (+22 per cent), Queensland (+14 per cent), Western Australia (+10 per cent), South Australia (+11 per cent) and Tasmania (+23 per cent).

By contrast, the investor loan data has been pretty much stone dead flat in the Australian Capital and Northern Territories respectively on a rolling annualised basis. 

Original data

This data series is not seasonally adjusted, but looking at the unadjusted or "original" data series reveals some interesting trends.

Queensland investor lending is clearly now tracking materially higher than was the case through the 2011 and 2012 lull.

This is being reflected in rising median house prices in inner Brisbane suburbs such as New Farm, East Brisbane, Coorparoo, Norman Park, Woollooongabba, Holland Park, Newmarket, Wilston, Clayfield, and others.

South Australia is also steadily emerging as a destination for budding property investors, despite the weaknesses apparent in both the underlying economy and labour markets.

In Western Australia the up-trend is rather less convincing, despite a lift in total investor lending over the past year. In fact, it could be rolling over.

Meanwhile in New South Wales, the Sydney market in particular is burning up, with total investor lending over the past year in the state unprecedented at $61.1 billion.

As a point of comparison, just three years ago in the year to April 2012 the equivalent figure was just $26.5 billion.

Lending has more than doubled (and then some) over that time horizon.

Unfortunately as noted here previously Sydney property listings appear to have dipped sharply again in June.

In some suburbs there is almost no stock for sale at all!

It's going to be a decmented third quarter for Sydney property markets in 2015. 

Finally, as for the droll reports that Sydney prices have been "falling" despite auction clearance rates ripping to record highs at close to 90 per