Credit growth slowest since January 2010

Credit growth slumps

Annual credit growth in Australia slumped to the lowest level since the global financial crisis at just 1.57 per cent in February. 

Business credit growth actually turned negative year-on-year, for the first time in a decade.

It's true that buy now/pay later services and the government stimulus measures have warped these figures to some extent, but even so it's odd that the media is calling for tighter lending environment when lending has been so painfully constrained already. 

Of course, it's not really about that, it's about controlling house prices, which in some markets, at least, have begun to rise strongly (though certainly not in all).

Annual housing credit growth has also been fairly modest, picking up to 3.81 per cent in February, which is the highest level since the 2019 election lead-up and ensuing banking Royal Commission crunch. 

Although overall housing credit growth is modest - with only 14 per cent of loan values on interest-only these days and more people paying off debt - the acceleration will be enough to push housing prices higher as 2021 progresses.

But with credit growth at decade lows the calls for macroprudential are misplaced.

The idea that rising prices are due to a sudden relaxation of lending standards in Australia is easily debunked.

Check out what's happening in the United Kingdom (prices rose 9 per cent nationally last year), or the U.S. (the Case Shiller index is up by more than 11 per cent year-on-year, for the fastest growth since 2006), or New Zealand (where prices are expected to rise 25 per cent over the year), 

The Aussie housing market will slow down later in the year anyway, with detached housing supply now at a record high, immigration at a record low, and the looming potential for a Labor election win to take the wind out of investors' sails, just as the conga line of first homebuyers is exhausted.

Bookmark this one.

Jab for victory

Vaccine effect

The latest CDC vaccine study results are better than we could have ever dared hope.

Not only are the vaccines effective at preventing death or serious illness, they are proving to be extremely effective at stopping infection too.

This is hugely positive news.

In short it means that once countries vaccinate enough people, the whole COVID thing is likely to be going away (unless deadly variants come along, which doesn't appear to be the case at this juncture). 

The countries which have vaccinated most of their adult populations are Israel and the United Kingdom, with the US making some serious inroads too with some 146 million doses administered.  

Israel's results have been devastatingly good, while the UK has smashed the death curve to the extent that the week of March 19 again saw deaths 8 per cent below their 5-year average. 

Jab's army

It's been a shock post-Brexit triumph that Britain has vaccinated about 31 million people with a first dose, or about 60 per cent of adults, with a pleasingly high take-up rate.

I wasn't pro-Brexit, but have to admit this has been an early surprise tick in the box for a more nimble and autonomous future. 

Whatever, the referendum is done with now, so we just have to get on with things in any case. 

'Deaths within 28 days of a positive test' have slowed to a crawl, with so much back-dating and data adjustment going on the official deaths figures are largely accounting noise now.

In England deaths were at their lowest point in 20 years in the week of March 19, even though most adults have only had their first dose so far, while hospital admissions have also slowed to a dribble. 

The US is flying through its own vaccination programme so will be next in line, rolling out up to 3½ million doses per day. 

The contrast with European countries such as Poland, with more than 30,000 cases in hospital, is stark. 

Most European countries were much slower to get started with their vaccination programmes, but are now playing catch-up with vigour, and the coming warmer summer weather may also help to end the third wave there. 

You might have seen on other social media platforms that - although I've never believed in personally being much at risk of serious illness - I reluctantly got jabbed with a first dose myself last week (and, yes, I only felt a small prick etc.). 

Australia has only delivered 541,761 doses so far, but will begin to ramp up domestic production through CSL now as FOMO kicks in, and the locked down residents of Brisbane begin to vent their fury at political leaders. 

Overall, good news from study results, though.

This thing is ending, and vaccines look to be the way out. 

Property demand eases a bit

Property demand eases

Neat real-time analysis from REA Insights shows hot property demand has rolled over, with the volume of highly-engaged buyers just beginning to turn downwards now. 

Weekly 'for sale' searches are still running at high levels, especially in New South Wales, Queensland, and Victoria. 

Total listings are also rising now as more sellers come to meet the market, though they remained 27 per cent below their 5-year average, according to CoreLogic's figures up to the first week of March. 

Source: CoreLogic

The HomeBuilder effect will taper off now, and so too in due course will the ultimately exhausted demand from first homebuyers.

A surge of first homebuyers and record low rates has certainly turned the market around, but prices aren't rising everywhere or for all property types, and there's also been a temporary shift away from high-density developments and CBD markets, which have struggled. 

Aggrieved analysts have tried to 'prove' a deterioration in lending standards by quoting quarterly percentage changes in interest-only lending, but that's a gross torturing of seasonal quarterly statistics as the stock of IO loans as a share of lending continues to drop to low as we've ever seen.

IO loans outstanding aren't even half of what they were a few years ago, and fell to just 14 per cent of residential term loan books, down from 39 per cent in 2016.

Or alternatively there's been some highlighting of the miniscule increase higher LVR loans, which has naturally been driven by the temporary first homebuyer stimulus.

Nothing much to see here, beyond straw-clutching stuff. 

Lending tough enough

All indicators and first-hand experience show that lending standards are not only robust, they're considerably tougher than they used to be.

Try refinancing a SMSF housing loan to anything much below a 6 per cent interest rate, for example, or getting a low doc loan...or getting a loan for pretty much anything other than a plain vanilla loan. 

And lifetime borrowing capacity has been crushed for many borrowers over recent years, no matter how many contorted attempts media commentators try to push 'reckless lending' angles.

Making it even harder to borrower is arguably harmful for financial stability, and will only serve to inevitably lead to the next housing shortage, especially as non-resident investors aren't funding new developments any more. 

Let lenders lend and borrowers borrow, and the housing supply will respond naturally. 

Low rates...that's it

It's basically only low nominal interest rates which have driven and facilitated the housing upswing. 

Well, that, and the lack of ability to travel or take foreign holidays, or spend stimmy cheques on cars that won't be rendered obsolete within a decade due to the relentless advance of EVs. 

The latest Reserve Bank of Australia ratios showed that debt to income ratios have declined quite noticeably since June 2019, while interest serviceability has collapsed to levels we've haven't seen before in this century.

And there's plenty more firepower to come over the next 3 or 4 years, as fixed rate borrowers roll off their existing mortgages and see their household cashflows improve markedly.

Over to The Otterman:

Yes.

Yes.

Yes.

That's it. That's the Tweet.

Warren Buffett mini-series #3: Be fearful when others are greedy

Buffett mini-series

The third episode in our Buffett series is here (or click on the image below):

You can download our new e-book here.

You can listen to the whole podcast series here.

You can tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a friendly review, as it helps us to get the word out. 

Podcast preview: Logic versus emotion

Logic versus emotion

This week on the Buffett mini-series podcast...

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You can listen to the whole podcast series here.

You can tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a friendly review, as it helps us to get the word out. 

Over 3,100 auctions held

More selling

This should alleviate some the fears of a supposed runaway housing market, with well over 3,100 willing sellers bringing their homes to auction this weekend.

Strong results again in Sydney, but median prices were no higher than a year ago as the pool of buyers was more effectively dispersed. 

Source: Domain

With so few results reported in the preliminary figures the final clearance rates will be considerably lower, probably in the mid-to-high 70s. 

The Big Picture podcast

Podcast time

With Michael Yardney, tune in here (or click on the image below):

Have a great weekend! 

Job ads soar

Vacancies soar

Skilled vacancies jumped by another 12,600 or 7 per cent in February to a total of 192,000 across Australia, according to the Department of Employment's latest figures. 

From a year earlier vacancies were a thumping 25 per cent higher, or 38,100 job advertisements. 

In other words we're pretty much recovering back on to the track of the previous recovery. 

There have been some serious gains from a year ago, notably in New South Wales (+9,700) and Queensland (+9,400), with some large percentage gains around the traps. 

Source: LMIP

Strong results all round. 

Looking at my chart packs over a longer timeframe, though, it looks as though Queensland and Western Australia have been two major beneficiaries from the shift of the past year. 

New South Wales and Victoria have largely recovered, but we clearly more impacted by slower or zero immigration over the past year. 

Canberra and Adelaide barely felt a ripple, and have improved all along. 

Time to refinance

The value of independent advice

At BuyersBuyers.com.au we do things a little differently from industry norms. 

We spend a good deal of time and detailed market research to help property buyers ensure they are appropriately qualified and as well positioned as possible to buy, and then to make the best-informed buying decision they can.

And then we engage our best and most appropriate buyer's agent solely to execute on the purchase (i.e. to focus what they do best, which is buying property). 

We're totally independent and have no vested interest in whether some buys in any given state, location, or property type.

Wouldn't all such property advice by independent?

Sadly not.

By way of one simple example, this week we had a client come to us who'd been advised by a buyer's agent to buy an off-the-plan apartment in a massive development in Logan (the buyer's agent's preferred local patch). 

Why on earth would a buyer's agent recommend to someone from Melbourne that they should buy a unit in Logan that hasn't even been built yet?

I can't prove it, of course, but I have a strong hunch. 

Last week we had a Sydney client come to us and his mortgage broker and buyer's agent had advised that he buy an off-the-plan development somewhere south of Melton!

Again, I can provide no solid proof, but I don't believe for one minute this advice was independent or without vested interest.

Regardless of whether these enquiring clients choose to engage our services, a simple independent discussion has steered them away what was, in my opinion at least, poor and conflicted advice.

Caveat emptor.

Time to refinance

On the subject of professional advice, now may well be a good time to speak to a licensed mortgage professional to ensure that you're getting the best deal possible on your home loan. 

As discussed here last week, mortgage rates have been declining, and then some.

Data via CoreLogic:

Source: CoreLogic

Happy hunting.

Stamp duty receipts on the rebound

Stamps rise again

Stamp duty and land transfer receipts over the year to February were on the up again, and heading towards $8 billion.

That's still some way below the heady 2017 peaks of above $10 billion, but still a taxation bonanza nonetheless, with plenty more to come over the next few years. 

With Sydney property prices up 20 per cent since slumping into the May 2019 election and up +27 per cent over March to date there will be a decent uplift from here, probably to record highs before the year is out. 

There was plenty of social media annoyance about a Chinese-Australian buyer paying $20 million for a Bondi Beach penthouse with ocean views on Saturday, but Revenue NSW certainly won't mind collecting the $1.4 million in duties (not to mention the capital gains taxes that will be raised from the seller, as the property was previously rented out).  

There have been many calls to scrap stamp duty over the years, but that'd leave a big hole in the state budget to fill. 

Hello seller!

More listings

Not so long ago commentators were frothing about the coming 32 per cent property price crash.

Now prices are rising, all the talk is of a market intervention!

The middle ground can be a lonely place to be. 

Of course, normally what happens when prices rise quickly is more sellers come into the market, and in time the market finds its level and a more sustainable pace of growth.

Voila...

As I discussed with Stephen Kouloulas in this video here, more building and more supply will calm things down in time. 

Podcast: Price is what you pay...

Buffett series

For the second part in our Buffett mini-series...you can tune in here (or click on the image below):

You can download our new e-book here.

You can listen to the whole podcast series here.

You can tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a friendly review, as it helps us to get the word out. 

More on lending standards

Lending standards are tough

Some additional detail on what's happening with lending.

See here for more (or click on the image below):

You can access the suite of WeIntelligence market research tools for free here. 

Weekend reads

Weekend reads

This weekend at Property Update, a look at the surging Sydney housing market, and what might happen when borders reopen.

Click here to read (or on the image below):

You can subscribe for the free Michael Yardney podcast here. 

Podcast preview

Podcast preview

A sneak preview of the next podcast episode in our Buffett mini-series...

---

You can download our new e-book here.

You can listen to the whole podcast series here.

You can tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a friendly review, as it helps us to get the word out.  

V is for Victoire!

Employment booms

Although it wasn't in any market forecasts, I did flag the possibility of record high employment rebounding to 13 million this month...

And it was to be so, with the figures sticking up a beautiful V-sign (for victory) to the pessimists, although many still believe employment will decline when JobKeeper ends.

Total employment is now above 13 million. 

The unemployment rate plunged all the way down to 2016 levels from 6.4 per cent to 5.8 per cent, with even lower results for New South Wales and Victoria. 

Employment has already largely recovered in the two most populous states in just 9 months, but Queensland has been the big outperformer over the year. 

Hours worked actually sneaked a little higher over the past year, though presumably many of these hours were done from home rather than in a city office. 

What more to say? 

A huge beat with full time employment increasing by a monster 89,100 in February. Wow!

Now let's hope we have the collective ambition to carry this thing through and push for an unemployment rate of 3 to 4 per cent. 

Lending standards remain robust

Lending standards chat

There's been a bit of idle social media talk about lending standards, which overall remain relatively tight.

There has been a modest increase in the market share of higher LVR loans, driven by the success of the First Home Loan Deposit Scheme (FHLDS), but overall lending is far tighter than it used to be (with just with a little more oxygen now than during the dark days of the banking Royal Commission). 

There's almost no SMSF or low doc lending now, loans to overseas residents are way down, and the stock of interest-only loans has plunged a massive 55 per cent lower since 2017.

In fact the stock of IO loans represents the lowest ever share of the housing loan stock, now at under 15 per cent, as more and more borrowers have switched across to paying down debt. 

There has been a bit more lending at high debt to income ratios of 6x or above, which is barely an issue given serviceability ratios are at the easiest level in nearly 45 years.

Regulators mightn't want to see a combination of high DTI ratios and skinny serviceability calculations, mind you, and as such it's possible that 25 basis points might be added to higher LVR mortgage assessment rates before the year is out, just to nudge things back into line.

Overall, though, most of the economist chat simply overlooks that competition in the mortgage lending space and record low rates are driving asset prices higher, much as you'd expect. 

Investment loans also remain at very low levels, although this will likely change before the end of 2021.

Overall, lending standards remain robust, as anyone who's been through the wretched process would know! 

Borrowing capacity has also been slashed over recent years.