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Sunday, 2 June 2019

Some pre-election stats

Credit drips through

The national accounts this week will show a flattish result for a third quarter, with the economy slowing towards stall speed at about 1½ per cent, or hopefully a bit better.

Westpac expects to see 1.9 per cent for the year to March, so let's see. 

This slowdown is not too surprising when you consider that credit growth has been squeezed so hard, from about 7 per cent in 2017 to under 4 per cent. 

Broad money growth, on the other hand, is now recovering from close to quarter-century lows, and things are now set to pick up in the second half of 2019. 

AMP and JP Morgan are now both calling for four interest rate cuts to stimulate the ailing economy.

Meanwhile Westpac maestro Bill Evans is discussing the possibility of QE following a likely three cuts this year (potentially the buying of asset backed securities, or providing attractive funding for the banks, per Evans). 

It's very likely, therefore, that credit growth will accelerate in H2 2019, driven in the housing sector by homebuyers more so than investors. 

Incidentally, I don't buy the argument that credit growth 'should' be slower, even remotely.

The Aussie population is practically exploding higher in the 25-35 age cohort, while there's been unprecedented use of mortgage offset accounts, which to some extent glosses over the recent weakness. 

Nobody can put an accurate figure on what credit growth should be - it's a moveable feast - but quicker than it has been would certainly be ideal, and particularly alongside some robust inflation and income growth. 

Business credit growth was flat for the month of April, and 4½ per cent for the year. 

Personal credit growth has continued to drop sharply - now falling at the fastest rate since the financial crisis.

This is partly being driven by fewer new cars being purchased, but there are some other factors at play, including use of the aforementioned offset accounts in lieu of other forms of credit. 

Housing impulse

I was chatting informally with a couple of banking exec and governance types this week, and they both reported that housing loan applications are tracking at their best level in 6 to 12 months, suggesting that some of the appetite for borrowing was returning even before the election result.

Housing credit growth over the year to April was actually at the lowest level on record at 3.9 per cent, but reportedly it's now 'back on'.

The negative rate of change had flattened out notably by the end of April, and i turn the housing credit impulse was also already lifting by April...and that's well before the election. 

A quick look at the composition of housing credit shows that credit growth to investors was zero in April, and at the lowest level on record for the preceding year. 

And therefore the investor share of credit continued to decline, to sit well below the 15-year average.

Sentiment much improved

All interesting stuff, but by far the biggest change of all for the established housing market has simply been in sentiment, with the election result leading to clear-cut examples of some Sydney auctions achieving up to $200,000 more than they might've done a couple of months ago, and much more in some cases. 

I don't put too much stock in population estimates, but a trip to inner-ring Sydney this week confirmed my suspicions that the place is jam-packed - it's absolutely heaving - to the extent I couldn't even get on the first airport line train that arrived, and the next one was jammed too.

There are plenty of apartments completing in some parts of Sydney, but at the rate the city's headcount is growing they won't be vacant for too long. 


Saturday in Newtown, via Tom Panos: