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<p>EXPERT OBSERVATION</p>
<p>The construction sector is in a cyclical downturn led by the housing sector, where conditions have swung from boom-to-bust.</p>
<p>Private new home building work fell by a further 3.4%, meeting our expectations, to be 11.6% below the peak of mid-2018. Renovations were broadly flat, -0.2%. The housing downturn still has further to go and will weigh on conditions into 2020.</p>
<p>Public works returned to adding to growth, increasing by 5.4% in the quarter. That follows a moderation over the past year (down 13.4%) reflecting a gap in the investment project pipeline. Our view has been and remains that public investment will be supportive of growth over the near-term, with governments continuing to commit to additional projects.</p>
<p>Private infrastructure provided a downside surprise, declining by 4.6%. The outlook is for some improvement. Commencements have picked-up somewhat (eg some iron ore projects have proceeded in response to the recent elevated prices) and the work pipeline has increased – pointing to an emerging lift in activity during the year ahead.</p>
<p><em><strong>ANDREW HANLAN </strong>is a senior economist for Westpac</em></p>
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Construction activity declined for a 5th consecutive quarter: Andrew Hanlan

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<p class="post-title entry-title">EXPERT OBSERVER</p>
<div id="post-body-36613851729109642" class="post-body entry-content">
<div>In May 2018, I noted that I didn't think we'd end up with a major housing crunch.</div>
<div> </div>
<div>Part of my reasoning was that 'lenders gonna lend'.</div>
<div> </div>
<div>In other words, just as we've used a knife and fork for more than 800 years, Australia's financial system has been deregulated for decades, and we still have four major banks, all of which need to lend money to make money.</div>
<div> </div>
<div>I felt this would insulate the housing downturn, despite the heavy macroprudential changes.</div>
<div> </div>
<div>What wasn't so clear at that time, at least to me, was the full impact that the Royal Commission would have on the appetite of lenders. </div>
<div> </div>
<div>In the event, a full seven rounds of public hearings was played out in front the media throng, and the final report wasn't delivered until last month.</div>
<div> </div>
<div>Accordingly there have been some nervous operators over the past year or so, and there was a very noticeable impact on mortgage processing and practices. </div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Policy moves</span></strong></div>
<div> </div>
<div>The RC final report being submitted only in February 2019, this is all very much fresh in the memory, so any loosening of the credit taps is likely to be gradual.</div>
<div> </div>
<div>But still, with a smaller mortgage pie to be shared around - lending volumes are down by a fifth from a year earlier - and major banks having lost market share in recent years, I believe there will be some policy moves to win business and get mortgage book growth back into positive territory.</div>
<div> </div>
<div>It's only March, bear in mind, the month after the final RC report, but today we saw the first interesting move of any note, from ANZ Bank:</div>
<div> </div>
<div class="separator"><a href="https://3.bp.blogspot.com/-RLHPrcZuxFk/XIn45vh_1pI/AAAAAAAAu98/uLIiYyi0OloMf308ZHbLqUL6TF8JDBlrwCLcBGAs/s1600/Wemyss.jpg"><img src="https://3.bp.blogspot.com/-RLHPrcZuxFk/XIn45vh_1pI/AAAAAAAAu98/uLIiYyi0OloMf308ZHbLqUL6TF8JDBlrwCLcBGAs/s640/Wemyss.jpg" width="640" height="233" data-original-height="274" data-original-width="745"></a></div>
<div> </div>
<div>90 per cent LVR investment mortgages with a 10-year interest-only term should generate a bit of welcome business for ANZ (not to mention profit, since rates and have tended to be higher on IO mortgages). </div>
<div>
<br>And ANZ has generally been one of the more proactive lenders of late.</div>
<div> </div>
<div>Some context is due.</div>
<div> </div>
<div>Borrowers taking this option on a 10-year IO mortgage will see sundry borrowing capacity hampered, due to the way in which this mortgage debt is assessed.</div>
<div> </div>
<div>And, indeed, most IO loans don't run for 10 years. </div>
<div> </div>
<div>But it's a nice cushion for borrowers seeking IO certainty, and moreover it's the first positive signal of competition returning for investor borrowers. </div>
<div> </div>
<div>
<em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em><span> </span>
</div>
</div>
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Credit to loosen a little: Pete Wargent

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<p>The <a href="https://www.urban.com.au/news/how-will-the-coronavirus-impact-australias-property-market">coronavirus pandemic</a> has created financial uncertainty for many Australians. The Federal Government has introduced a few <a href="https://www.ausbanking.org.au/covid-19/the-personal-relief-package/">financial assistance options including loan and credit card deferrals</a> for individuals affected by COVID-19, giving successful applicants the option of pausing payments, provided their pre-COVID-19 payments were up to date. The deferral period of these payments will have no effect on credit ratings, according to the Australian Banking Association.</p>

<p>It is important for people to understand what a loan or credit card deferral can mean. For example, a loan pause can result in your loan term being extended overall if you want to preserve the same repayment rate after the pause ends; or it can cause a higher repayment rate if the loan term is not extended. It is important to consider all the information upfront and make the best decision for your personal circumstances.</p>

<p>The industry-wide agreement is good news for diligent customers who have suddenly found it impossible to keep up with the bills after losing their job or having their income severely reduced.</p>

<p>ABA Chief Executive, <a href="https://www.ausbanking.org.au/a-covid-19-mortgage-deferral-wont-affect-your-credit-rating/">Anna Bligh,</a> said: “Australia’s banks are here to support customers who have lost their jobs or significantly lost income because of COVID-19… Customers in these circumstances should not have to worry about their credit rating as well.”</p>

<p>For customers who were already behind in their loan repayments, the ABA has stated that banks will determine how to report the information once the repayment pause has ended and opt to report nothing during the pause.</p>

<p><strong>Tips for Aussies Struggling to Meet Repayments</strong></p>

<p>If you cannot make a repayment because of COVID-19:</p>

<ul>
<li>Talk to your bank before you miss a repayment rather than after when damage might have already been done to your credit report.</li>
	<li>Contact your bank via their website or phone app. If you cannot reach them, try contacting them by email or on social media. Lenders are likely to backdate any repayment pauses if you have tried to make contact.</li>
	<li>Before you pause your <a href="https://www.urban.com.au/guides/how-to-secure-a-mortgage-free-lifestyle-sooner">mortgage</a>, ask your bank for a rate reduction to help you keep up with the repayments. Repayment pauses can provide some much-needed relief, but they are likely to be costly in the long run.</li>
	<li>If you are getting charged interest on your credit card, consider switching to a low-rate card instead.</li>
	<li>Try and avoid adding to the problem (where possible). If you have a credit card, you can ask your lender to lower the limit to something you know you can manage.</li>
	<li>When you do get <a href="https://www.urban.com.au/news/resetting-your-finances-during-covid-19-a-financial-coachs-guide">some money coming back in</a>, try and clear your debt as quickly as possible. </li>
</ul>
<p><strong>Can I improve my credit rating or change my credit report?</strong></p>

<p>There are steps you can take to improve your credit score over time to assist in future financial planning. Some initial steps you can take are to reduce your credit limit, put a pause on applying for credit through loans and credit cards, and set up reminders or direct debits to ensure that you pay bills, from utility to credit cards on time. While some information can affect your <a href="https://www.urban.com.au/expert-insights/buying/assess-your-credit-files-long-before-applying-for-finance-for-your-dream-home">rating</a> for several years, after taking positive steps, your score should gradually improve.</p>

<p>You can also change or remove incorrect information on your credit report much quicker. This may include your name, date of birth or address as well as if a debt is listed twice, the amount of debt is wrong, or if a debt that is not yours is incorrectly noted on the report. You can also remove incorrectly placed defaults, judgments, repayment histories or enquiries that do not comply with the credit reporting legislation.  </p>

<p>Although this may be an <a href="https://www.urban.com.au/news/why-the-real-estate-industry-must-replace-fear-with-opportunity-during-the-covid-19-crisis">unprecedented time</a> for many Australians, it is crucial to understand the help that is available to those affected as well as how to improve/change your credit rating during and post the coronavirus pandemic.</p>
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Bank Loan ‘Holidays’ - What it Means for Your Finances and Credit Rating?

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<p>Consumer groups have welcomed the announcement by the Australian Banking Association that bank customers applying for payment deferrals as a result of the COVID-19 pandemic will not have a missed payment or hardship flag appear on their credit file.</p>
<p>Importantly, this approach will apply across the board to all consumer debt, including mortgages, personal loans and credit cards.<br><br>Consumer advocacy organisations and banks have been working together to provide solutions for customers experiencing financial hardship as a result of the COVID-19 pandemic through the Australian Banking Association’s Consumer Outcomes Group. The ABA has worked with its member banks to ensure where repayment deferrals are granted due to COVID-19, credit reporting is conducted in a fair and consistent manner. This ensures clarity and minimises any risk of confusion by customers who have different credit products from the same bank.<br><br>This approach to credit reporting means that banks will not notify credit reporting bureaus of a customer’s missed repayments during the COVID-19 deferral period. This will give consumers peace of mind when entering into loan deferrals with their banks as their credit rating will not be negatively impacted.<br><br>They urge other credit providers to follow the banks’ example.</p>
<p>Fiona Guthrie, CEO of Financial Counselling Australia said, "financial counsellors are already getting questions from clients about the impact of COVID-19 related hardship on credit reporting scores. This puts the matter firmly to rest when it comes to interacting with the banks and we welcome it strongly."</p>
<p>"But this also shows why, when this crisis is over, this approach should remain in place. People are put off asking for hardship variations if they know it will hurt their credit report. No one chooses to experience financial hardship. When it happens we shouldn't be punished for it."</p>
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No impact on credit files during COVID-19 pandemic

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<p>EXPERT OBSERVER</p>
<p>In a recent monthly credit update we wrote "Credit weakness lingers despite lift in housing finance".</p>
<p>A couple of months on, total credit growth slipped in October and annual growth hit a fresh cycle low.</p>
<p>Housing finance is rising and housing credit growth is beginning to stir - but only gradually.</p>
<p>However, business credit dipped in October, -0.1, against a challenging economic backdrop, and personal credit is contracting as households shift to other products.</p>
<p>In October, total credit grew by only 0.1%, which is below the monthly average for the 2019 year to date of 0.2%. The mix was: housing +0.27%; business -0.1%; and personal -0.6%.</p>
<p>Annual credit growth moderated to 2.5%, the slowest pace since April 2010.</p>
<p>Credit growth has progressively eased after peaking at 6.7% during the 2015/16 financial year. Key to the slowdown is the housing downturn as the cycle matured and lending conditions tightened.</p>
<p>Housing credit grew by 3.0% over the past year. That is the weakest result in the history of the series (dating back to the late 1970s) and below the previous cyclical low of 4.4% in mid-2013.</p>
<p>In 2018, the housing sector downturn accelerated as lending conditions tightened further and as investors pulled-back. New lending contracted by 5% in the six months to June and then fell by a sharp 15.4% in the six months to December (as weakness spread from investors to owner-occupiers).</p>
<p>Now in 2019, new lending for housing has turned the corner - with a 15% rebound from June to September, more than reversing the near 6% fall over the initial five months of the year.</p>
<p>The housing rebound has been supported by a number of factors. Sentiment bounced after the May Federal election, which removed uncertainty around tax policy for the sector. The RBA has lowered rates since June by a total of 75bps, with further cuts likely. In addition, APRA has eased mortgage serviceability assessments.</p>
<p>Housing credit is improving but slowing - with growth in October of 0.27%mth, 3.0%yr. The October figure annualised is 3.3%, up from a 3 month annualised low of 2.6%.<br>Investor credit remains weak, with a broadly flat October month to be 0.2% lower over the year. For owner-occupiers, the figures are 0.44%mth, 4.8%yr.</p>
<p>Business credit growth slowed to 2.7% in October, including a decline in the month, of -0.1%.</p>
<p>The business credit profile has been uneven in 2019. There was a soft spot in the June quarter, around the time of the Federal election, (with growth at only 0.8% annualised), followed by a rebound in the September quarter (up by 3.4% annualised).</p>
<p>For businesses, the economic backdrop has become more challenging. The global economy is slowing and household spending is soft. In this environment business investment in the real economy has lost momentum across the non-mining sectors - which will weigh on credit demand.</p>
<p><em>Read full report: <a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2019/November/er20191129BullCreditOct.pdf" target="_blank">Australian private credit October' (PDF 193 kb)</a></em></p>
<p><em><strong>ANDREW HANLAN </strong>is a senior economist for Westpac</em></p>
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Housing finance and credit growth are beginning to stir: Andrew Hanlan

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<p dir="LTR" align="LEFT">Credit growth was anaemic in mid-2019, with housing weak in the wake of the sharp downturn and with business hitting a soft spot around the time of the Federal election.</p>
<p dir="LTR" align="LEFT">More forward to August and credit growth remains weak despite the lift in new lending for housing in response to interest rate cuts. The reason for this apparent puzzle is that mortgagors repayments take a little time to adjust to the lower rates - as discussed below.</p>
<p dir="LTR" align="LEFT">Total credit grew by 0.2% in the month of August, matching the average monthly outcome for the year to date. The mix was: housing +0.17%; business 0.2%; and personal -0.2%.</p>
<p dir="LTR" align="LEFT">Annual credit growth has slipped below 3.0%, to 2.9% in August - the softest outcome since mid-2011.</p>
<p dir="LTR" align="LEFT">Credit growth has progressively eased since expanding by 6.6% in 2015, with growth moderating to 5.6% in 2016, +4.8% in 2017 and +4.3% in 2018.</p>
<p dir="LTR" align="LEFT">Key to this trend has been the housing sector. Housing credit growth has moved lower over recent years: from 7.4% in 2015; 6.3% in both 2016 and 2017; to 4.7% in 2018. The latest annual reading is 3.1%, the weakest in the history of the series (dating from the late 1970s) - the previous low was 4.4% in 2013.</p>
<p dir="LTR" align="LEFT">In 2018, the housing sector downturn accelerated as lending conditions tightened further and as investors pulled-back. New lending contracted by 5.8% in the six months to June and then fell by a sharp 15% in the six months to December. The downturn broadened to owner-occupiers, with finance to this segment 2% lower in 2018H1 then down 14.3% over 2018H2.</p>
<p dir="LTR" align="LEFT">More recently, new lending for housing has turned the corner - with a rebound in June and a jump in July. Sentiment has bounced following the May 18 Federal election, with the return of the Coalition government. The RBA lowered rates in June and again in July, with additional cuts likely, and APRA has eased mortgage serviceability assessments.</p>
<p dir="LTR" align="LEFT">A lift in new lending will see housing credit growth strength over the coming months. However, over the past three months, housing credit has been choppy with repayments yet to be adjusted in recognition of the lower interest rates. That means that principal is being repaid more quickly - which acts to slow credit growth.</p>
<p dir="LTR" align="LEFT">Momentum in housing credit, the 3 month annualised growth pace, is 2.5% currently, moderating from 6.7% in mid-2017. By segment, 3 month growth is 4.4% annualised for owner-occupiers and -0.9% for investors.</p>
<p dir="LTR" align="LEFT">Turning to business credit, this grew by 3.4% over the past year, up from 3.0% for 2017 but still representing a moderation from gains of 6.4% in 2015 and 5.4% in 2016.</p>
<p dir="LTR" align="LEFT">In 2019, business credit has hit a soft spot, with growth slowing to 2.1% annualised over the past 6 months. A key was the temporary impact of additional uncertainty around the time of the May Federal election. This mirrors the experience of the July 2016 Federal election.</p>
<p>At the same time, the economic backdrop has become more challenging, the global economy is slowing and domestically household spending is soft. In this environment business investment in the real economy has lost momentum across the non-mining sectors - which will tend to weigh on credit growth.</p>
<p><em><strong>ANDREW HANLAN </strong>is a senior economist for Westpac</em></p>
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Credit growth anemic in mid 2019: Andrew Hanlan

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<p>EXPERT OBSERVER</p>
<p>Home prices are expected to have increased by around 1.5 per cent in Sydney and Melbourne in August when the final data is released by CoreLogic on Monday. Property sentiment has improved. Better sentiment is evidenced by a jump in auction clearance rates to 2-year highs – pointing to a lift in demand on the back of lower mortgage rates.</p>
<p>And there is more policy certainty, together with an easing in lending criteria from the bank regulator.</p>
<p>That said, listings, turnover and volumes remain low with the Spring selling season a key catalyst for the outlook for the market.</p>
<p>While housing market conditions are improving, the broader residential property market remains challenging for home builders – especially the apartment markets in Sydney and Melbourne – which have seen double-digit annual declines in council consents.</p>
<p>The value of building approvals on an annual rolling basis is still above the decade average, but the number of new homes approved to be built has fallen to the lowest level since January 2013.</p>
<p>The continued slowdown in dwelling investment will continue to act as a drag on broader economic activity and hiring intentions for tradies and construction workers continue to weaken. And concerns about building defects could crimp investor demand for new apartments in Sydney and Melbourne, despite an improvement in lending conditions.</p>
<p>Solid population growth, location appeal of apartments near amenities and transport hubs, lower borrowing costs, improved access to credit for housing borrowers and rising home prices should help eventually stabilise building approvals. Approvals should level-out and modestly lift next year as property developers continue to acquire sites.</p>
<p><strong>Private sector credit &amp; APRA data (July)  </strong></p>
<ul>
<li>Private sector credit (effectively outstanding loans) rose by 0.2 per cent in July after 0.1 per cent growth in June. </li>
<li>Annual credit growth fell from 3.3 per cent in June to an 8- year low of 3.1 per cent in July.</li>
<li> Housing credit grew by 0.3 per cent in July. And the annual growth fell from 3.5 per cent to 3.3 per cent – the slowest growth rate on record. </li>
<li>Owner occupier housing credit rose by 0.5 per cent in July to stand 4.9 per cent higher over the year – equalling the weakest annual growth rate in the past five years. </li>
<li>Investor housing finance fell in July with annual growth the slowest on record at 0.3 per cent. </li>
<li>Personal credit fell by 0.4 per cent in July after declining by 0.3 per cent in June. Lending fell by 3.7 per cent over the year – the biggest annual decline in almost a decade. </li>
<li>Business credit rose by 0.2 per cent in July after a flat result in June. The annual growth rate fell from 4.1 per cent to an 11-month low of 3.9 per cent. </li>
<li>The M3 money aggregate rose 0.4 per cent in July (strongest growth in four months) and Broad Money also lifted by 0.4 per cent. Annual growth of the M3 money aggregate rose from 3.9 per cent to 4.1 per cent with Broad Money annual growth rate up from 4.0 per cent to 4.2 per cent. </li>
<li>Loans and advances by banks grew by 4.0 per cent in the year to July, up from 3.4 per cent in the year to June (the slowest growth rate in 27 years). </li>
<li>Deposits at deposit-taking institutions rose by 1.2 per cent in July.</li>
<li>According to APRA, loans by deposit taking institutions to households via credit cards fell from $39.2 billion to a near 9-year low of $38.6 billion in July. Credit card lending is down by a record 5.0 per cent over the year (biggest fall in 14 years).</li>
</ul>
<p><strong>Building Approvals</strong></p>
<ul>
<li>Council approvals to build new homes fell by 9.7 per cent in July to 12,944 units – the weakest level in 6½ years. Approvals are down by 28.5 per cent over the year.</li>
<li>House approvals fell by 3.1 per cent in July and apartment approvals fell by 19.6 per cent. </li>
<li>In trend terms, overall approvals fell by 3.2 per cent in July, the 20th straight fall. </li>
<li>Over the past year 182,321 new homes were approved (decade average 195,365) – the lowest number of new approvals in 5½ years. </li>
<li>Dwelling approvals across states/territories in July: NSW (down 17.5 per cent); Victoria (down 24.3 per cent); Queensland (up 10.9 per cent); South Australia (up 34.8 per cent); Western Australia (up 5.8 per cent); Tasmania (up 21.5 per cent). Trend terms: Northern Territory (flat); ACT (down 22.4 per cent). </li>
<li>The value of all commercial and residential building approvals fell by 7.3 per cent in July to be down 19.9 per cent on the year. Residential approvals fell by 5.4 per cent in July; new building fell by 6.2 per cent; alterations &amp; additions rose by 0.4 per cent. Commercial building fell by 9.9 per cent.</li>
<li>Over the year to July, building approvals totalled $111.9 billion, up 13.6 per cent above the decade average</li>
</ul>
<p><strong>What are the implications for interest rates and investors?</strong></p>
<ul>
<li>The latest data provides little in terms of fresh direction. Demand for homes has lifted after the election, as shown by home price data. But few are rushing to architects to get new projects off the ground. Both new building and home prices should recover gently over the coming year. </li>
<li>Private sector credit (effectively outstanding loans) responds with a lag to activity in the economy. New loans are added to the stock of loans and old loans get paid down and paid out over time. But credit growth will lift modestly as owner-occupiers and investors respond to a firmer housing market and as more confident business start investing again following the election</li>
</ul>
<p>The Commonwealth Bank Group expects <strong>two</strong> further rate cuts in November 2019 and February 2020.</p>
<p><em>CRAIG JAMES is CommSec's Chief Economist</em></p>
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Housing to stabilise, Credit card debt slides: CommSec's Craig James

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<p>EXPERT OBSERVATION</p>
<p>The Australian Bureau of Statistics (ABS) data out today indicates significant reductions in the amount of lending for new homes.</p>
<p>The value of lending by dwelling investors in NSW has dropped by 30 percent between January 2018 and January 2019.</p>
<p>Over the same time span the number of owner occupier loans has dropped by 19 percent. These significant falls are clearly leading to a big slow-down in the supply of new homes in New South Wales.</p>
<p>When the investment slow-down is added to the big drop in housing approvals in NSW, where apartment approvals have dropped by 41 percent between January 2018 and January 2019, there is clearly a growing concern about the pipeline of new homes in the state.</p>
<p>APRA must now take action to help the flow of loans back to both owner occupiers and investors so the housing supply across Australia does not slow down to unsustainable levels.</p>
<p>It appears that the slow-down is even bigger in metropolitan Sydney but the NSW Department of Planning data is only up to September 2018. The Department indicates that in September 2018 the year to date approvals were 48,435 - well down on the 58,000 approvals at March 2017.</p>
<p>Whoever wins government in NSW on March 23 will need to look seriously at the likely pipeline of housing supply for the state and particularly for metropolitan Sydney. In the lead up to the election a number of politicians have raised concerns about over development with the result that planning has been suspended in a number of areas across Sydney. To stop planning for another year of so will have a dramatic impact of housing supply for Sydney’s growing population.</p>
<p>The Urban Taskforce believes that the next NSW Government must tackle the negative issues around the planning system and other economic constraints so that the new housing industry, and the 300,000 direct jobs that normally flow from the construction activities, are supported.</p>
<p><em>CHRIS JOHNSON is the Urban Taskforce CEO</em></p>
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