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July, 201810:52 PM



Loans for renovations at 3-year lows

Loans for renovations at 3-year lows

Total new lending commitments (housing, personal, commercial and lease finance) fell by 1.0 per cent in February to $70.7 billion...

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16.04.2018 03:50 PM

Loans for renovations at 3-year lows
Lending finance; Weekly petrol prices

Lending finance: Total new lending commitments (housing, personal, commercial and lease finance) fell by 1.0 per cent in February to $70.7 billion, down from US$71.4 billion in January. Commitments are up by 4.7 per cent on a year ago.

Loans for home renovations decline: Lending for alterations and additions fell from $377.3 million in January to $337 million in February – the lowest level in three years.

Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 2.3 cents to 141.2 cents a litre in the past week – the highest level in 7 weeks. 

What does it all mean?

Aussies probably found it difficult to find a local tradie in recent years as the housing market was going gangbusters. However, a deceleration in home prices due to tighter lending restrictions maybe changing demand for home renovations.

Homeowners appear to be less enthused about taking out a loan to renovate their castles. Lending commitments for alterations and renovations are at the lowest level in three years at $337 million in February. And commitments fell by 10.7 per cent during the month – the largest decline in seven years – and were down by 11.8 per cent over the year – the weakest annual growth rate in five years.

Home prices are falling, so perhaps homeowners are holding-off on upgrading their abodes given diminished prospects for big gains in home prices.

The school holidays are here and the ANZAC Day public holiday isn’t far away. But there’s little to cheer about for motorists planning a road trip. Petrol prices remain elevated and could increase even further.

Rising global crude oil prices, recent changes to Mogas (the benchmark for fuel prices) and the weakening Aussie dollar against the greenback (down 3.9 per cent since January 29) are behind the uplift in retail pump prices.

Global crude oil prices are back at 3-year highs. Escalating tensions in the Middle East have boosted prices and there is plenty of scope for them to increase further. Potential sanctions by the Trump Administration on Syria’s key sponsors – Russia and Iran – could curtail oil production.

Global oil supply is already under pressure, supporting crude prices. OPEC’s oil output fell to the lowest level in a year in March due to reduced supplies from Venezuela, Saudi Arabia and Mexico. Last week the Brent crude oil price rose by 8.2 per cent to US$71.04 a barrel. The US Nymex price rose by 8.6% to US$65.51 a barrel.

The Singapore price of unleaded petrol is the key petrol pricing benchmark for Australia. Around 20 per cent of petrol is imported from Singapore and South Korea to meet Aussie demand according to the Australian Institute of Petroleum. Last week the benchmark Singapore price rose back towards its highest level in 2½ years.

Gross retail petrol margins rose last week. The five-week average gross retail margin (the gap between the pump and terminal gate price) increased by 0.6 cents to 11.54 cents a litre.

What do the figures show?
Lending Finance

Total new lending commitments (housing, personal, commercial and lease finance) fell by 1.0 per cent in February to $70.7 billion, down from US$71.4 billion in January. Commitments are up by 4.7 per cent on a year ago.

In trend terms, lending rose for the fifth straight month, up by 0.2 per cent in February.

Personal finance commitments were flat in February after increasing by 3.7 per cent in January. Fixed lending fell by 2.2 per cent. But revolving credit was up by 3.7 per cent following an 8.9 per cent surge in January – the best monthly outcome in 13 months. Personal loans are down by 0.2 per cent on a year ago.

Within fixed lending, loans to buy blocks of land was at a record high $8.13 billion for the year to January.

All housing finance rose by 1.1 per cent in February with construction and purchases up by 1.3 per cent. Alterations and additions fell by 10.7 per cent – the largest monthly decline in seven years – and were down by 11.8 per cent over the year – the weakest annual growth rate in five years. All housing finance is up 6.9 per cent over the year.

Commercial finance fell by 2.1 per cent in February after declining by 0.1 per cent in January. Within commercial commitments, fixed lending rose by 3.4 per cent while revolving credit fell by 18.7 per cent. Commercial loans are up by 4.7 per cent on a year ago.

By industry, commercial loans to the finance and insurance industry rose to 8½-year highs of $59.8 billion in February. Commercial finance to the agribusiness industry was at a record high $24.4 billion in February. And commercial finance to the miners rose to the highest level in 22 months at $13.2 billion in February.

Lease finance fell by 2.5 per cent in February after declining by 6.3 per cent in January to stand 17.5 per cent lower over the year.

Petrol prices

According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 2.3 cents to 141.2 cents a litre in the past week – the highest level in seven weeks.

The metropolitan petrol price rose by 1.3 cents to 140.3 cents per litre and the regional price increased by 4.3 cents to 143.0 cents per litre.

Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 10.2 cents to 144.5 c/l), Melbourne (down by 5.3 cents to 135.8 c/l), Brisbane (down by 4.3 cents to 138.5 c/l), Adelaide (up by 10.0 cents to 144.0 c/l), Perth (up by 0.7 cents to 138.5 c/l), Darwin (up by 0.3 cents to 148.6 c/l), Canberra (up 0.2 cents at 148.2 c/l) and Hobart (up by 1.0 cents to 148.3c/l).

The national average Australian price of diesel petrol rose by 1.7 cents to 141.6 cents per litre. The metropolitan price rose by 1.3 cents to 141.7 c/l and the regional average price rose by 1.9 cents to 141.4 c/l.

Today, the national average wholesale (terminal gate) unleaded petrol price stands at 127.6 cents a litre, down by 0.6 cents over the week. The terminal gate diesel price stands at 129.5 cents a litre, down by 0.2 cents over the past week.

Last week the key Singapore gasoline price rose by US$2.95 or 3.7 per cent to US$82.15 a barrel. In Australian dollar terms the Singapore gasoline price increased by $2.43 or 2.4 per cent to $105.59 a barrel or 66.41 cents a litre – just shy of 2½-year highs.

MotorMouth records the following average retail prices for capital cities today: Sydney 141.1c; Melbourne 133.1c; Brisbane 137.2c; Adelaide 152.6c; Perth 128.5c; Canberra 148.2c; Darwin 148.6c; Hobart 141.0c.

What is the importance of the economic data?

Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.

Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications for interest rates and investors?

Loans for renovations and alterations are at 3-year lows. Aussies may be starting to re think their home renovation projects. Home prices are decelerating after an unprecedented period of strong growth. The capital upside appears more limited than in recent years should home owners decide to sell their abodes.

Aussies are likely to experience further pump price pain. Global oil prices are rising and could increase further. Currency weakness is adding to the cost of importing refined crude barrels from Asia. As always, the petrol retailers will play their part in determining capital city price cycles.

Petrol prices rose by around 1 per cent over the March quarter and add modestly only to next week’s headline consumer prices index.

CommSec doesn’t expect a change in interest rates until at least the December quarter.

Published by Ryan Felsman, Senior Economist, CommSec
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