Slowest housing lending growth on record


Private sector credit (Lending)

  • Private sector credit rose by 0.3 per cent in November to stand 3.6 per cent higher than a year ago.
  • Housing lending to owner-occupiers stands 7.3 per cent higher than a year ago – the weakest reading in records going back 20 years (since 1990).
  • Business credit fell for the fifth straight month, easing 0.2 per cent. Business credit growth stands 2.2 per cent lower than a year ago and has been consistently falling for 17 months.

What does it all mean?

  • In 20 years of records, lending to home owners has never grown at a slower pace. It is a remarkable statistic, highlighting the impact that rate hikes have had over 2010. The Reserve Bank was determined to lift rates to “normal” levels but it has come at a cost. Not only have home prices weakened over 2010 but so has construction activity, pointing to weaker times ahead for builders, tradespeople and real estate agents alike.
  • Overall the modest uptick in overall lending is encouraging, particularly the pickup in consumer loans. But the old adage of ‘one swallow does not a summer make’ is clearly appropriate. Lending will need to pick up further in coming months to get retailers and other consumer-focussed businesses more excited about the road ahead.
  • Businesses are still cutting debt at a faster rate than new loans are being taken out. Overall this is a good reason to remain cautious on the outlook for the economy.

What do the figures show?

Private sector credit

  • Private sector credit (lending) rose by 0.3 per cent in November after edging just 0.1 per cent higher in each of the previous three months. Credit growth is up 3.6 per cent on a year ago.
  • Housing credit grew by 0.5 per cent with both lending to owner-occupiers and lending to investors up 0.5 per cent. Housing credit is up 7.5 per cent on a year ago – the weakest annual growth in 15 months. Owner occupier housing credit is up 7.3 per cent on a year ago – slowest pace in records going back 20 years. Investor housing lending was up 8.0 per cent on a year ago, down from 8.1 per cent in October.
  • Personal credit rose by 0.5 per cent in November after rising by 0.2 per cent in October. Personal credit was up 2.4 per cent over the year – still below the rate of inflation. Business credit fell for the fifth straight month in November, easing by 0.2 per cent. Business credit is down 2.2 per cent on a year ago and has been consistently contracting for the past 17 months.

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.

What are the implications for interest rates and investors?

  • There are glimmers of hope for consumer-focussed businesses in the latest credit data. On balance consumers seem to be taking on a bit more debt, albeit very cautiously. The runs aren’t on the board but it is a trend worth watching.
  • The softness in housing lending and home prices gives the Reserve Bank more reason to stay on the interest rate sidelines. We argued that the Bank was slightly too aggressive in lifting rates in 2010 and that is borne out by the weakness in recent economic data.
  • Not even in the past recession was lending to home owners this weak – it clearly shows a re-assessment by young Aussies about whether to buy or rent.

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