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Tuesday, 24 December 2019

Private sector credit growth at decade lows

Credit growth slows again

Monthly housing finance flows are up by more than 15 per cent since the election as homebuyers return to the market, driving a solid rise in prices. 

Meanwhile, more households are also taking the opportunity to pay down debt.

As such the growth in the stock of housing credit was just 0.18 per cent in November, and 2.93 per cent over the year. 

That's the lowest annual percentage growth across the 43 years of available data, and helps to explain why debt to income ratios are now falling (with tax cuts also now beginning to help). 

Investor credit growth was again negative in November, and fell year-on-year, as more and more loans roll off interest-only terms.

This is arguably good news for financial stability, though it's also helping to suck the living daylights out of household consumption. 

Personal credit fell by a massive -4.9 per cent over the year, but this data series may well be becoming less relevant if it doesn't capture buy now pay later transactions. 

Business credit growth was also lacklustre, at just 0.2 per cent in November, and 2½ per cent over the year. 

Overall, total credit growth fell to just 2.3 per cent, which is the slowest result since April 2010, when credit growth was only 2.2 per cent as Australia emerged from the global recession. 

This weakness is partly due to a lack of demand, but also reflects that it's often just darned hard to get credit out of institutions. 

There's no direct link between credit growth and housing prices, of course.

For one thing, neither cross-border nor non-intermediated lending are captured in these numbers, and the relationship can also be distorted by the switcheroo away from interest-only loans.

In any case, housing prices are now higher year-on-year at the capital city level. 

In some ways the housing credit figures are now in a bit of a Goldilocks zone for the Reserve Bank.

Housing prices are rising as first homebuyers and upgraders enter the market, and finance for new housing and construction also appears to be responding according to the latest available ABS figures 

At the same time many households and property investors are also deleveraging.

Even so, total credit growth of 2.3 per cent is still pretty dismal for an economy with nominal GDP growth running at 5½ per cent for now on commodity price strength.