Housing Credit

<p>The RBA has noted that housing prices had increased significantly in recent months.&nbsp;</p>

<p>&quot;Growth in housing prices had been especially strong for detached housing, particularly in outer metropolitan and regional areas,&quot; according to the RBA.</p>

<p>&quot;This had partly reflected strong demand from first-home buyers and owner-occupiers seeking more space.&quot;</p>

<p>&quot;The momentum in housing price increases had broadened recently to include the largest capital cities and the more expensive segments of these markets, although the increase in overall housing prices in Australia during the pandemic had been more modest than in a number of other countries.&quot;</p>

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<p>The minutes did not only single out New Zealand.</p>

<p>The minutes did note cross-country differences in population growth stemming from international border closures.&nbsp;</p>

<p>&quot;In some countries, including Canada, which had experienced high and rising rates of immigration in the years prior to the pandemic, population growth had slowed substantially.&quot;</p>

<p>&quot;In New Zealand, some of the slowdown in population growth had been mitigated by the return of expatriate New Zealand citizens during the pandemic; in turn, it was likely that this had contributed to the increase in housing demand in New Zealand.&quot;</p>

<p>The minutes noted the decline in population growth in Australia had been particularly steep relative to other countries; in the 3 months to September, the Australian population had declined for the first time in several decades as a result of a reversal in net overseas migration.&nbsp;</p>

<p>&quot;However, in countries where net migration had contributed less to population growth in the years before the pandemic, including the United States, population trends had been little changed in recent quarters.&quot;</p>

<p>The minutes also noted that globally, asset prices had been increasing given the low levels of interest rates.&nbsp;</p>

<p>&quot;Housing prices, in particular, had increased strongly in a number of countries in the latter part of 2020 and early 2021.&quot;</p>

<p>&quot;Growth in housing credit had increased in a number of these countries, but it generally remained slower than growth in housing prices.&quot;</p>

<p>It noted that in Australia growth in both housing credit and housing prices had picked up, &quot;but to a lesser extent.&quot;</p>

<p>Annualised growth in housing credit had been around 4&frac12; per cent over the 6 months to February, driven by demand from owner-occupiers.&nbsp;</p>

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<p>The minutes noted demand for new housing finance had been strong, and the high level of loan commitments indicated that housing credit growth was likely to increase in the months ahead.&nbsp;</p>

<p>&quot;However, there was no notable evidence of a deterioration in housing lending standards.&nbsp;</p>

<p>&quot;The share of loans with higher loan-to-valuation ratios had increased, but this was in part explained by the larger share of first-home buyers.&quot;</p>

<p>&quot;The share of loans with high debt-to-income ratios had been relatively stable.&quot;</p>

<p>&quot;Members agreed that it would be important to watch carefully for increased risk-taking by lenders and any deterioration in lending standards and larger shares of higher-risk loans.&quot;</p>

<p>The members noted that low interest rates had been one of the factors contributing to the increase in demand for housing, alongside other policies such as government grants.&nbsp;</p>

<p>The latest minutes noted advertised rents had also picked up in a number of capital cities recently, although, as in other countries, housing prices had increased by more than rents.</p>

<p>&quot;Rents and overall conditions in the apartment market in Melbourne, and to a lesser extent in Sydney, remained subdued as the reduction in net overseas migration was still lowering demand,&quot; it noted.</p>


The RBA says the increase in overall housing prices in Australia during the pandemic had been more modest than in a number of other countries

jchancellor

Australia's housing price rises more modest than overseas: RBA

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<p><span>GUEST OBSERVER</span></p>
<p><span>Housing credit growth firm but business credit growth is slowing.</span></p>
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<p><span>The 5.4 percent rise in total credit over the year is low by historic standards. But Australia</span><span>’</span><span>s stock of private debt is still growing faster than nominal GDP which </span>means overall leverage in the economy is rising. </p>
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<p><span>The increase in leverage is being driven mainly by the household sector. And the debt is going into bricks and mortar. </span></p>
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<p><span>Housing credit has been expanding by around 0.5 percent a month over the past six months. But the annual growth rate has been falling over that period. The </span>stock of housing credit was growing at 6.4 percent/pa in September. It looks like it will stabilise around this level over the near term.  </p>
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<p><span>Despite the annual growth rate of housing credit cooling, the pace of growth is still well above national income growth. This means that the household debt- to-income ratio is rising. It is currently at a record high and puts Australia in the top tier of household indebtedness globally. As the RBA noted in its October Financial Stability Review, </span><span>“</span><span>household indebtedness continues to drift up and, with incomes growing more slowly than in the previous decade, households may not be able to rely on income growth to make their debt easier to service.</span><span>” </span></p>
<p><span>Credit to owner-occupiers grew by 0.5 percent in September and is up 7.3 percent through the year. The stock of debt to investors rose by a slightly higher 0.6 percent </span>over the month and annual growth lifted a little to 4.8 percent. Investor credit growth 55 has been accelerating month on month for the past six months which is consistent with other indicators of activity in the housing market. The lift in investor-related credit shows that the May and August rate cuts had a stimulatory impact on the housing market.</p>
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<p><span>Business credit growth has been limp over the past five months after accelerating earlier in the year. The trend in business credit is a little concerning because it suggests that non-mining private capex is likely to be soft over the near term. Fortunately public capex is starting to lift after falling as a share of GDP for most of the past six years. This will need to continue to support aggregate demand if private investment is going to remain soft.</span></p>
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<p><span>T</span><span>he “deleveraging” in other personal credit continues</span><span>. Personal credit is down 1.3 percent over the year and reflects the lack of appetite for consumer debt outside of housing. </span></p>
<p><span>Broad money was flat over September and stands 5.8 percent higher through the year. </span></p>
<p><em><span>Gareth Aird is e</span><span>conomist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905" target="_blank">here</a>.</span></em></p>
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jchancellor-FAypfDUnLy

Housing credit growth firm, business credit growth slowing: Gareth Aird

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<div>Won't spend too much time on this, as the Financial Aggregates figures relate to before APRA's latest round of changes and therefore the landscape has once again shifted. </div>
<div> </div>
<div>The Reserve Bank's latest figures showed credit growth of 0.3 percent in February, following on from a result of just 0.2 percent in January. </div>
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<div>Housing credit increased by 0.6 percent in the month, but both business and personal credit growth were negative.</div>
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<div>Over the year to February housing credit increased by 6.4 percent down from 7.3 percent a year ago, with investor credit rising a notch further to 6.7 percent. </div>
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<div>Annual credit growth slowed to 5 percent from 6.6 percent a year ago.</div>
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<div>Business credit growth in particular has slowed from 6.5 percent a year ago to just 3.7 percent.</div>
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<div>There are many ways to fund business expansion,of course, but this doesn't necessarily bode well for the business investment outlook. </div>
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<br>As a result, housing now accounts for a record 61.7 percent of outstanding credit.</div>
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<br><div>There was a further $1 billion of housing loan purpose switching taking the total switched to owner-occupier from investor loans since July 2015 to $50 billion. </div>
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<br>And housing credit outstanding increased to $1.65 trillion by February 2017.<br><br>More measures have since been taken to slow the creation of new interest-only loans.</div>
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<p class="p1"><span class="s1">PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank"><span class="s2">AllenWargent</span></a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank"><span class="s2">blogger</span></a>.</span></p>
<p class="p2"><span class="s3"><em>His latest book is </em><a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank"><span class="s2"><em>Four Green Houses and a Red Hotel</em></span></a><em>.</em></span></p>
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pwargent-M4siyDbqQY

Housing credit growth slows

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<p class="p1"><span class="s1">GUEST OBSERVER</span></p>
<p class="p1"><span class="s1">The Reserve Bank of Australia (RBA) released its <span class="s2">Financial Aggregates</span> figures for January 2017.</span></p>
<p class="p1"><span class="s1">Although housing credit continued to chug along in notching growth of 0.5 per cent in the month, total credit growth sagged to just 0.2 per cent due to negative results for the business and personal sectors.</span></p>
<p class="p1"><span class="s1">Housing credit for investors continued to rise to 6.6 percent across the year to January, suggesting that further hikes may be in the post for investor loans.</span></p>
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<p class="p1"><span class="s1">Total credit growth was 6.4 percent, while broad money growth was 7 percent.</span></p>
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<p class="p1"><span class="s1">Deposit growth has strengthened considerably as banks look to shore up their capital. </span></p>
<p class="p1"><span class="s1">Even term deposits, understandably out of favour for some time, are recording growth at a double digit pace, with some accounts set to offer bonus interest on larger balances. </span></p>
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<p class="p1"><span class="s3"><strong>Switcheroo</strong></span></p>
<p class="p1"><span class="s1">The total value of outstanding credit has doubled over the past decade to $1.64 trillion.</span></p>
<p class="p1"><span class="s1">The exact split of loan purpose between owner-occupier and investor credit remains murky, with a net value of $49 billion having been switched away from investment loans since July 2015.</span></p>
<p class="p1"><span class="s1">This reflects the interest rate differential between loan types, but note that the credit growth figures by loan type have been adjusted for the net value of switching. </span></p>
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<p class="p1"><span class="s1">The poor monthly result for business and personal credit sees housing resume its apparently inexorable rise in terms of market share.</span><span style="font-size: 12.16px;"> </span></p>
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<p class="p1"><span class="s3"><strong>The wrap</strong></span></p>
<p class="p1"><span class="s1">All regulatory eyes will be on the growth in investor loans, with more measures likely to be taken to cool this sector as 2017 progresses.<br><br></span></p>
<p class="p1"><span class="s1">PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank"><span class="s2">AllenWargent</span></a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank"><span class="s2">blogger</span></a>.</span></p>
<p class="p2"><span class="s3"><em>His latest book is </em><a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank"><span class="s2"><em>Four Green Houses and a Red Hotel</em></span></a><em>.</em></span></p>
<p class="p1"><span class="s1"> </span></p>
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Housing credit doubles in a decade: Pete Wargent

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<p>GUEST OBSERVER</p>
<p>The ongoing diversity in the housing market highlights the different growth drivers that are evident from region to region.</p>
<p>The economies of Sydney and Melbourne remain relatively sheltered from the downturn in the resources sector and have benefited from a very healthy services sector and positive population inflows while the mining states and territories are experiencing softer economic conditions and a sharp wind down in population growth, particularly from overseas migration.</p>
<p>The annual expansion in investor related housing credit has now dropped to a pace that is much lower than APRA’s mandated 10 percent growth per annum, while credit growth for owner occupiers is expanding.</p>
<p><a href="/images/2016/06/09/Screen%20Shot%202016-06-10%20at%208.33.17%20AM.png" target="_blank">Click to enlarge</a></p>
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<p>With many banks now placing a premium on investment mortgage interest rates and also increasing mortgage rates and serviceability limits on all mortgages we have seen investment housing demand slow however, there has been a slight up-tick in demand from this segment over recent months.</p>
<p>It’s important to note, however, that lenders have been reclassifying existing mortgages from investment purposes to owner occupation, which is likely to be having an impact on the figures. Some lenders have recently relaxed previous restrictions on investors which could result in a rebound in demand from this segment over coming months.</p>
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<p>The cumulative effect of tighter lending conditions, more expensive mortgage rates for investors and lower yields, as well as natural affordability constraints and higher levels of new housing supply, is likely to continue to impact the Sydney housing market resulting in a further slowdown over the year.</p>
<p>It is also expected that as the year progresses the rate of home value growth in Melbourne will also slow however, the slowdown is likely to be more moderate than the slowing in Sydney, at least during 2016. South-East Queensland looks set to see further increases in housing demand and potentially stronger value growth throughout the year.</p>
<p>Hobart and Canberra also appear better set for value growth over 2016 due to improving housing and economic conditions and relatively more affordable housing compared to Sydney and Melbourne. Adelaide is likely to show only moderate rates of value growth this year. In the meantime, we anticipate that values will continue to fall in trend terms throughout 2016 in Perth and Darwin.</p>
<p><a href="/images/2016/06/09/Screen%20Shot%202016-06-10%20at%208.42.17%20AM.png" target="_blank">Click to enlarge</a></p>
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<p><em>Tim Lawless is head of the CoreLogic research and analytics team and can be contacted <a href="https://blog.corelogic.com.au/author/timlawless/" target="_blank">here</a>.</em></p>
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tlawless-5VLUrbAk9s

Upturn on slowing investment housing demand: Tim Lawless

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<p>Near-term strength in the Sydney and Melbourne property markets will continue but cool as tighter credit conditions impact, according to the April Australian economic outlook report from NAB.</p>
<p>The report said these effects will be compounded by modest wages growth/ deteriorating affordability and new additions to the housing (apartment) stock but with growth moderating.</p>
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<p>"Our national forecasts for houses in 2017 are 7.2 percent in 2017 (previously 3.4 percent) and 4.3 percent in 2018," NAB said. </p>
<p>"Unit prices are forecast to rise 6.8 percent in 2017 (previously 0.8 percent), but will fall modestly in 2018 (-0.4 percent). </p>
<p>"Regarding the housing market performance over the past month, there are still no signs of the market cooling in Sydney and Melbourne, with annual prices growth hitting multi-year highs in both cities. </p>
<p>"Auction rates have also been elevated for both cities, pointing to tight market conditions, while the NAB Residential Business Survey shows that sentiment in both these markets was strong in Q1 2017 – although also suggests that tighter credit conditions are becoming a greater constraint.</p>
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<p>"New building approvals have come off their highs, but the trend has turned positive again more recently.</p>
<p>"That is a surprise development given our expectation for the industry to self regulate supply in light of growing settlement risk and over- supply concerns in some segments (namely CBD apartments) – suggesting we could see the construction cycle extend a little longer than expected, although economic modelling still points to significant downside risks to construction.</p>
<p>"Overall, dwelling investment is expected to rise 2 percent in 2017, before turning modestly negative (-1.1 percent and -3.5 percent in 2018 and 2019 respectively). </p>
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<p>"Regulators have again moved to tighten lending standards for housing loans, particularly for interest-only and investor lending.</p>
<p>"Against a backdrop of below-target inflation and elevated unemployment, policy makers are unlikely to address their concern about household balance sheets via interest rates, with further macro-prudential measures possible.</p>
<p>"We expect the RBA to remain on hold for an extended period, before some small hikes in late 2019 as domestic demand starts to improve.</p>
<p>"The big news in the last month has been the renewed focus on macro-prudential measures to contain what are perceived as emerging risks in the property market.</p>
<p>"APRA announced new measures in late March, most notable of which were limitations on interest only lending imposed on ADIs. While more severe measures had been anticipated in some quarters, and could suggest more to come, the likely impact is nonetheless unclear – macro prudential measures can be effective in the short-term, but their longer term impact is more questionable.</p>
<p>"NAB Economics assessment is that the new policies will likely slow mortgage lending growth in the near-term, albeit fairly modestly. For now though, housing finance continues to grow briskly, with investor loan approvals now back near levels seen before the last round of prudential tightening by APRA.</p>
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jonathanchancellor-7SQnKwU6yx

Tighter credit conditions to cool Sydney, Melbourne property market heat

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<p>GUEST OBSERVER </p>
<p>Businesses are investing again.</p>
<p>And while ‘animal spirits’ are not running rampant as yet, the best back-to-back gains in investment spending have been recorded for three years. And the outlook is brightening.</p>
<p>In the June quarter, expectations for investment in 2017/18 lifted by almost 18 per cent. You have to go back seven years to find a June quarter upgrade as positive. </p>
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<p><img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%209.41.30%20AM.png" alt=""></p>
<p>Investment outside mining and manufacturing sectors hit record highs in the June quarter. And this may be under- stating the true situation because the Bureau of Statistics survey of investment excludes a number of key sectors such as health care, education, the public sector and agriculture.</p>
<p>So overall there is a lot to like with the latest investment survey – spending is rising, especially in the services sectors, while investment plans are being revised higher. Lower prices for equipment is one of the factors supporting investment spending together with strong corporate balance sheets.</p>
<p>What do the figures show?</p>
<p>Private business investment</p>
<p>Overall: Business investment (spending on buildings and equipment) rose by 0.8 per cent in the June quarter after a 0.9 per cent lift in the March quarter. Spending on buildings fell by 0.6 per cent in the quarter while spending on equipment rose by 2.7 per cent – the strongest quarterly gain in almost three years. Investment is down 3.0 per cent over the year with buildings down by 5.1 per cent while equipment was down by 0.1 per cent.</p>
<p>Sectors: Mining investment fell by 2.8 per cent in the June quarter, while manufacturing spending rose by 1.4 per cent and spending by “other selected industries” rose by 2.8 per cent.</p>
<p>States: In seasonally adjusted terms investment rose in five of the eight states and territories in the June quarter: NSW (up 3.5 per cent); Victoria (up 2.5 per cent); Queensland (up 1.6 per cent); South Australia (down 5.5 per cent0; Western Australia (down 1.4 per cent); Tasmania (up 0.4 per cent); Northern Territory (down 7.3 per cent; ACT (up 9.2 per cent).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%209.44.37%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%209.44.37%20AM.png" alt=""></p>
<p>Prices: The overall deflator for investment goods rose by 0.1 per cent in the June quarter after rising by 0.2 per cent in the March quarter. The cost of buildings and structures rose by 0.7 per cent while the cost of equipment fell by 0.5 per cent. Over the year, the cost of investment goods rose by 0.5 per cent. The cost of buildings rose by 3.1 per cent – the fastest rate in 8 years – while the cost of investment equipment fell by 2.8 per cent.</p>
<p>In 2016/17, business investment totalled $112.2 billion – the lowest financial year total in seven years.</p>
<p>Forecasts: The third estimate of investment in 2017/18 is $101.78 billion and is 3.6 per cent lower than the third estimate for 2016/17 – the smallest decline (best result) for a second estimate reading in five years. The upgrade in investment between the second and the third estimate was 17.6 per cent – the biggest upgrade in 7 years. </p>
<p>Private sector credit</p>
<p>Private sector credit (lending) rose by 0.5 per cent in July after a 0.4 per cent rise in June. Annual credit growth eased from 5.4 per cent to 5.3 per cent.</p>
<p>Housing credit grew by 0.5 per cent in July to be up 6.6 per cent on a year ago. Annual growth was steady at 6.6 per cent.</p>
<p>Owner occupier housing credit rose by 0.5 per cent in July to stand 6.1 per cent higher over the year. The last time growth was lower than now was September 2015. Investor housing finance lifted 0.4 per cent in June to stand 7.4 per cent higher over the year – the third month annual growth has been at that level.</p>
<p>Personal credit fell by 0.1 per cent in July to be down 1.4 per cent over the year.</p>
<p>Business credit rose by 0.5 per cent in July after a 0.8 per cent rise in June. Business credit is 4.2 per cent higher than a year ago.</p>
<p>Both M3 and Broad Money fell by 0.1 per cent in July – the first declines in six years. </p>
<p>What is the importance of the economic data?</p>
<p>“Private New Capital Expenditure and Expected Expenditure” is released quarterly by the Bureau of Statistics. The figures show both actual and expected spending by businesses on tangible assets such as new buildings, machinery and office equipment. The figures are obtained after sampling 8,000 private business units.</p>
<p>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.</p>
<p>What are the implications for interest rates and investors?</p>
<p>Businesses are confident and spending. And the expectation is that businesses will keep spending. In fact during the earnings season a number of listed companies indicated a preference to plough money back into their operations rather than just continue to lift dividends.</p>
<p>Despite the positive data, CommSec still expects official interest rates to remain on hold for an extended period. Investment is lifting, but from a low base. And inflation is contained outside the construction sector. </p>
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<p><span><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em> </span></p>
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