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.

Monday, 31 August 2015

Investor credit revised higher

Total credit 

The Reserve Bank released its Financial Aggregates data for the month of July 2015 which revealed a solid month for housing credit (+0.6 per cent) and business credit (+0.7 per cent).

Over the past year housing credit growth (+7.4 per cent) has continued to lead the way over business credit (+4.8 per cent) and personal credit (+0.9 per cent).

This puts total credit growth at +6.1 per cent for the year to July.

Business credit

Business credit growth ticked up to +4.8 per cent for the past year, reflecting somewhat improved commercial lending data reported by the ABS, lending finance having rebounded from "recession-like" conditions between 2009 and 2011.

Although year-on-year business credit growth remains well below the levels seen in previous cycles, of course total credit is now coming from a higher base (a similar point applies to housing credit).

Another indicator which is far from conclusive on a standalone basis but is nevertheless worth a glance is total capital raisings as reported by the securities exchange (ASX).

Another strong month of capital raisings takes the rolling annual volume of total capital raised to its highest level since May 2010 following  a number of material floats and secondary capital raisings.

Housing credit

Moving on to housing credit, at first blush investor credit seems to be slowing ticking back in response to APRA's cooling measures from +11.1 per cent year-on-year in June to +10.8 per cent in July. 

This brings investor credit growth closer to the +10 per cent threshold identified as desirable by the regulator.

However, it is worth noting here that following on from what we saw in the APRA ADIs figures a material revision was pushed through in July 2014 flipping around ~$30 billion of credit previously classified as "owner occupier" credit across to "investor credit".

The loans reclassifications related to National Australia Bank and ANZ, and you can see the net impact thereof in the chart below.

Total lending for housing increased in the month of July by +$8.5 billion or +0.58 per cent to $1,476.1 billion.

Investor share

I noted a few months ago that the trend towards investors accounting for a larger percentage share of total outstanding credit was likely "set in stone for quite some time to come", as much based upon my experiences in the market as any hard data being reported by APRA or the Reserve Bank.

After all we have tax legislation in this country which encourages investors to accumulate debt, while I've had any number of enquiries from first-time buyers opting to look at investment properties first instead of a place of residence. 

If my experiences over recent years have been anything even approaching the norm, it was inevitable that investor credit had to be growing its share of the pie.

And indeed restatements completely reshape the face of the share of housing credit, with the investor share of outstanding credit blasting higher from 36.2 per cent to 38.6 per cent. 

Whooosh! An all-time reord high...

APRA (and RBA) in "wait and see" mode

Despite this, consensus seems to be that APRA will continue to monitor the annual percentage increase in investor credit (which is now gradually slowing) rather than focussing on the above chart which suggests a huge change in the share of total credit from what had previously been believed.

Wayne Byres shed some more light on APRA's stance himself in a speech last week, seemingly indicating a "wait and see" approach for now.

In other news, there remained very few signs of inflationary pressures in the TD-MI monthly inflation report (only +0.1 per cent in August) despite the ongoing decline in the Aussie dollar.

Meanwhile, the cash rate will be kept on hold by the Reserve Bank at 2 per cent tomorrow in September's Board Meeting.