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Tuesday 24

July, 2018 1:39 AM



Record slowdown for investor home loans

Record slowdown for investor home loans

Private sector credit (effectively outstanding loans) rose by 0.2 per cent in May after a 0.4 per cent rise in April.

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29.06.2018 04:27 PM

Record slowdown for investor home loans
Private sector credit; New house sales

Lending: Private sector credit (effectively outstanding loans) rose by 0.2 per cent in May after a 0.4 per cent rise in April. It was the slowest monthly growth in 16 months. Credit was up 4.8 per cent over the year – equalling the slowest rate in four years.

Investor housing: Investor housing finance was flat in May with annual growth easing to a record low of 2.0 per cent. The data has been compiled since 1990.

New house sales decline: In seasonally-adjusted terms, new detached house sales fell by 4.4 per cent in May to stand 12.8 per cent down on the peak in December and stand 14.1 per cent lower than a year ago. 

What does it all mean?

The regulators have been clearly successful in slowing investor demand for home loans. Investor home lending is still growing, but at the slowest pace in 28 years of records.

Overall Aussie consumers and businesses remain wary about taking on more debt. Credit is broadly lifting in line with the nominal growth of the economy with owner-occupier home loans and business lending providing the main supports. The Reserve Bank will be comforted by recent trends.

Banks will need to work harder for the affections of borrowers and savers. Aussies are reluctant to borrow and returns on savings are arguably more attractive in the sharemarket.

What do the figures show?
Private sector credit

Private sector credit (effectively outstanding loans) rose by 0.2 per cent in May after a 0.4 per cent rise in April. It was the slowest monthly growth in 16 months. Credit was up 4.8 per cent over the year – equalling the slowest rate in four years.

Housing credit grew by 0.4 per cent in May and has risen 0.4-0.5 per cent a month over the past year. But annual growth eased from 6.0 per cent to 5.8 per cent – the lowest growth rate for over four years.

Owner occupier housing credit rose by 0.6 per cent in May to stand 7.9 per cent higher over the year.

Investor housing finance was flat in May with annual growth easing to a record low of 2.0 per cent.

Personal credit fell for the fourth straight month, down 0.1 per cent in May to be down 1.3 per cent over the year. It was the biggest annual decline in six years.

Business credit fell by 0.2 per cent in May with annual growth easing from an 8-month high of 4.3 per cent to 3.8 per cent. 

Both M3 and Broad Money rose by 0.4 per cent in May to be up 2.5 per cent for the year. Broad Money is growing at the slowest annual pace in 25½-years.

Term deposits with banks fell by $0.6 billion to $581.1 billion in May. Annual growth fell from 3.2 per cent to a four month low of 3.1 per cent.

Loans and advances by banks grew by 4.9 per cent in the year to May. And loans and advances by non-bank financial intermediaries rose by 4.4 per cent over the year, down from a 9½-year high of 7.1 per cent in March.

Deposits at banks rose by just 0.1 per cent in May to stand 2.5 per cent higher than a year ago.

New home sales

In seasonally-adjusted terms, new detached house sales fell by 4.4 per cent in May to stand 12.8 per cent down on the peak in December and stand 14.1 per cent lower than a year ago.

The Housing Industry Association reported: “The monthly reduction in May was synchronised across the surveyed states – sales fell by 6.8 per cent in New South Wales, 4.6 per cent in Victoria, 5.0 per cent in Queensland, 0.2 per cent in South Australia and 2.4 per cent in Western Australia.”

No data was published by the HIA for multi-unit sales.

What is the importance of the economic data?

Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia's largest 100 home builders. The survey covers around 15 per cent of the home building industry.

What are the implications for interest rates and investors?

Home building and buying activity will be driven by those seeking to live in the dwellings rather than looking at homes as a potential investment. The latest trends in lending should allay concerns about the potential for a massive oversupply of homes developing.

The reduction in investor home loan demand should ensure that home prices grow at more sustainable rates over the next few years.

Credit and money growth remain sluggish, keeping inflationary pressures at bay.

CommSec expects official interest rates to remain on hold until 2019.

Published by Craig James, Chief Economist, CommSec
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