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Friday, 1 April 2016

Homebuyer credit growth at 65 month high

Business credit solid

The Reserve Bank's Financial Aggregates data this month revealed credit growth improved to +6.6 per cent in February, up from +6.2 per cent one year earlier, and keeping in place a general uptrend that has been ongoing since the November 2009 nadir. 

Despite mixed results reported by the ABS for commercial lending, business credit growth has recorded back-to-back strong results of +0.6 per cent in January and +0.7 per cent in February. 

Annual business credit growth of +6.5 per cent represents a solid increase from +5.5 per cent one year ago, and certainly a vast improvement on the negative growth experienced through 2010 and 2011. 

Personal credit growth remains moribund, while seasonally adjusted total housing credit growth inched up ever so marginaly to +7.34 per cent from +7.33 per cent in January. 

As you can see in the chart below, investor lending growth continues to drop quite dramatically, but the thirst for mortgages in aggregate has by no means been quenched, with homeowners quickly stepping up to fill the void. 

Owner-occupier credit growth continues to surge, rising to a 65-month-high of +7.1 per cent. 

M3, Broad Money & the Stock of Credit

Both "M3" and broad money grew by a bit less than 6 per cent over the year to February.

While term deposits are understandably unpopular right now given the low rates of return available, current and other deposits held with banks and other ADIs have grown substantially at a double digit pace over the year.

Lending for housing continues to outpace direct lending to busineses (although some use lending secured against housing for small business purposes) leading total housing credit to rise to $1.54 trillion against a total market value for residential property of about $6.4 trillion. 

Interestingly growth in the stock of outstanding investor credit has now completely evaporated following APRA's intervention, something that is historically unusual for Australia.  

It will be very interesting to see whether this hosing down of investor lending eventually results in tighter capital city vacancy rates and rising rents by 2017.

The word on the street is that banks are pushing owner-occupier lending very hard, with Commonwealth Bank not even looking at mortgage application documents for at least 8 business days due to their experiencing "unprecedented volumes".

The chart below shows the rapid and "seamless" shift from investor to homebuyer lending. 

There is a bit of semantic debate around about whether this represents a contraction, a cooling, a slowdown, or a moderation of lending. 

Certainly the rate of house price growth nationally has slowed, yet the big picture is that housing credit is still rising at a very strong pace given that we are coming from an already high base.

As denoted by the gold line below, we are talking about the sort of pace which, if sustained, would double the stock of outstanding housing credit to $3 trillion in less than a decade. 

Fact is, with the cost of money so cheap, unsatiated demand for housing in Australia remains enormously strong, perhaps higher than it has ever been before. 

For that reason, it may be the case that further tightening measures are applied to lending criteria, such as banks taking a tougher stance on household expenses. or the ability to service repayments should interest rates rise. 

The wrap

Overall this was a mostly pleasing result for the Reserve Bank, with housing credit - and particularly investor housing credit - no long accelerating to the moon, and business credit record a couple of consecutively solid results.