Credit aggregates slow
Business credit growth remained solid in the most recent Financial Aggregates data, up by almost 10 per cent over the year to May 2026, with investment in new data centres seeming likely to be a tailwind over the next year or two.
Housing credit growth slowed from 0.65 per cent to 0.54 per cent in the month of May, and this growth largely relating to mortgage approvals initiated well before the Federal Budget.
Over the year, housing credit growth was still solid at 7½ per cent, but these strong figures are already rolling over significantly on the monthly data.
Housing credit growth for investors was running at double-digit levels over the year - arguably underscoring why there was a need for a tax policy change - with the housing market having become flooded with borderless buyer's agents buying up investment properties all over the country.
Yes, this was partly a response to a shortage of housing and rising rents, but it was also potentially becoming a systemic risk for the housing market and the economy.
In real time, the housing credit impulse is undergoing a hard U-turn, and asking prices have already fallen significantly for houses in Sydney, Melbourne, and now Brisbane over the past three months.
Below is the asking prices chart for houses Sydney, from SQM Research, which shows asking prices for detached houses down by -4.3 per cent over the past 3 months (Melbourne and Brisbane are reflecting a very similar pattern):
Source: SQM Research
Business confidence collapses
In other news, small business confidence has been annihilated.
In fact, business confidence for SMEs has now fallen lower on the NAB survey measures than it cratered during the pandemic (which is pretty remarkable given everything that was happening at that time):
Source: NAB
What next?
What comes next looks set to be a painful adjustment for the housing market, and the Aussie economy.
Here are three related things which will likely happen, in my best guess.
Firstly, it seems that very few investors are prepared to take the risk of buying a new build property at the moment, given crippled market confidence and increasingly scary media headlines.
As such new housing supply will eventually tighten.
This will take a while to work its way through, however, given that there's a significant pipeline of new dwellings already under construction.
Secondly, as stamp duty take is already being eviscerated, it's almost certain that at the state level there will be creative incentives put in place to encourage more buyer activity, whether it's in the form of first homeowner grants, loans, deposit schemes, duty relief, or other concessions and initiatives.
And thirdly, the interest rate cycle may also now be getting close to its peak, according to central bank rhetoric, market futures pricing, and bond yields.
The Reserve Bank of Australia's Board Minutes, released today, appeared to bring to mind the significant slowing in consumption growth which was brought about by the Banking Royal Commission through 2018, and there's evidently some concern that the Aussie economy may be tipping into a slowdown or even a recession.
An August interest rate hike is now priced at lower than a 20 per cent chance, and Australia's 3-year bond yield is trading at around 4.37 per cent.
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