Pete Wargent blogspot

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

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Monday, 29 February 2016

Owner-occupiers lead housing lending (dust off the Etch-A-Sketch!)

Credit growth steady

The Reserve Bank of Australia released its Financial Aggregates data for January 2016, which showed credit growth of +6.5 per cent in the year to January 2016, a steady increase on the +6.1 per cent recorded for the year to January 2015.

Total annual housing credit growth has slowed a bit from its recent peak of +7.47 per cent in November 2015 to +7.33 per cent in January 2016, reflecting in part the shift in composition of lending from investors to owner-occupiers. 

Investor credit growth is now well below APRA's arbitrary +10 per cent threshold at just +7.9 per cent and consistently slowing from +11 per cent in June, meaning that theoretically major banks could in due course start to ramp up lending into this sector should they feel the urge to do so. 

Of course, any such move would be dependent upon a range of regulatory factors, and whether APRA has the appetite to loosen its throttle.

Meanwhile owner-occupier annual credit growth recorded another significant jump in surging to a 64 month high of +6.95 per cent, with homebuyers looking to take advantage of attractive mortgage rates.

Deposit growth seems to present few headaches for banks right now. While term deposits have been understandably less popular in the prevailing low interest rate environment, total deposits with banks have expanded in a robust manner over the year to January. 

Business credit

Business credit grew by +6.2 per cent in the year to January 2016, up from +5.5 per cent in the year to January 2015. It is as yet unclear whether this is the end of the uptrend for business lending growth, or a blip in the upwards trajectory. 

Housing credit

The chart below shows how lenders in the housing market have conveniently managed to shift almost seamlessly away from investment lending to owner-occupier credit, with a bit of reclassification jiggery-pokery along the way.

In fact, the data submitted by lenders makes it look as though the chart has been drawn up on an Etch-A-Sketch.

Total housing credit continued to push beyond $1.53 trillion, growing at an annual pace of +7.33 per cent, although naturally there are marked differences between the states and capital cities, with some faring much better than others.

There have been a few pro-equities articles today discussing "plummeting" lending and investors "leaving the market in droves".

That's interesting, but it's not what I'm seeing. Don't forget that housing credit expanding at a pace of +7 per cent implies a doubling in outstanding credit over a decade.

It's all in the marketing, I guess.

The wrap

Credit growth was fairly steady in January, with owner-occupiers continuing to pick up the baton from investors within the housing sector.

A key question going forward will be whether having managed to push investor credit growth below its preferred +10 per cent threshold APRA releases its grip on investor lending at all. 

As APRA's data last week showed, the overwhelming majority of property buyers these days have substantial deposits, the question is whether tougher criteria are to be maintained surrounding mortgage serviceability. 

Another key factor could be movements in the cash rate, with interest rate cuts potentially set to stimulate demand for mortgage borrowing further, although it appears likely that lenders would hold back 10bps to15bps of a prospective 25bps interest rate cut.

Adding to the parts of GDP we already know such as net exports, the Business Indicators released by the ABS this morning including inventories (-0.4), wages (+0.5), and company profits (-2.8), each suggested that headline GDP growth for the fourth quarter of 2015 is likely to be weak. 

These GDP partials may prove to be another tack in the coffin for the next movement in interest rates being down.