Home loans soar but business confidence still gloomy

The number of new owner-occupier housing loans rose by 5.2 per cent in March, the strongest rise in four years. But the share of loans taken up by first home buyers fell to a near 9-year low.

What does it all mean?

• Reserve Bank Board members are probably wincing after the latest home loan data. Last week figures showed that employment soared by over 50,000 in April. Today, data shows that home loans jumped by the biggest amount in four years. Add in the weaker Aussie dollar – an event welcomed by businesses – and Board members may be regretting their decision to trim cash rates.
• Still, it is clear from the latest survey that businesses were clearly hoping for a rate cut to be delivery at the May Board meeting with business conditions near four-year lows. And the home loan data certainly wasn’t unambiguously strong with the share of loans taken up by first home buyers easing again to fresh four year lows.
• But policymakers need to come to grips with the fact that Generation Y has a far different attitude to home ownership and debt than their parents. A growing proportion want to rent, not buy, preferring lifestyle of socialising and travel over decades of paying off home loans.
• It is clear from the latest cards data that Aussie consumers have a frosty relationship with their credit cards. Aussies are no longer adding to debt, in fact the pace of debt reduction is the fastest in history. Of credit cards attracting interest charges the average balance is falling at a near 6 per cent annual rate.
• Overall a lot has happened in the space of the week. And there are good reasons for the Reserve Bank to stay on the interest rate sidelines for at least a month or so before thinking about cutting rates again.

What do the figures show?
Housing Finance:

• The number of new owner-occupier housing loans rose by 5.2 per cent in March – the strongest gain in four years. Excluding the refinancing of dwellings, loans were up 7.2 per cent. The value of loans rose by 5.8 per cent (excluding refinancing, up 6.8 per cent).
• The number of loans for the construction of homes rose by 4.6 per cent and the value of loans rose by 6.2 per cent.
• The number of loans to buy newly-erected dwellings rose by 21.1 per cent and the value of loans rose by 16.6 per cent.
• The number of loans for the purchase of established dwellings rose by 4.2 per cent and the value of loans was up by 5.0 per cent.
• The number of refinancing transactions rose by 1.1 per cent and the value rose by 3.2 per cent.
• The value of new housing commitments (owner occupier and investment) rose by 4.5 per cent in March. Owner-occupier loans rose by 5.8 per cent with investment loans up by 2.1 per cent.
• The proportion of first home buyers in the market fell to a near 9-year low of 14.2 per cent in March (lowest since June 2004), down from 14.4 per cent in February. Fixed rate loans rose from 13.5 per cent of all loans to 18.4 per cent in March – the highest level in five years. And the average home loan across Australia stood at $301,100 in March, up 4.0 per cent on a year ago.

Credit card

• Figures released from the Reserve Bank show that the average credit card balance fell by $24.90 in March to $3,256.70. The average credit card balance is down by 2.4 per cent on a year ago.
• Of credit cards attracting interest charges, the average outstanding balance fell by $60.10 in March to $2,294.30. The average balance accruing interest is down by a record 5.7 per cent on a year ago.
• The average credit card limit fell by $6.50 to $9,133.80 in March. The average credit card limit rose by just 1.4 per cent in the year to March – equalling the slowest growth rate in 18 years.
• The number of credit card cash advances rose by 3.4 per cent in March after slumping by 7.7 per cent in February (value rose by 5.5 per cent). In smoothed terms, credit card advances are down 4.1 per cent on a year ago and have consistently fallen in the past five years.
• The number of purchases made with credit cards rose by 1.9 per cent over the year to March. Purchases made with debit cards were up 10.6 per cent on a year ago.

National Australia Bank Business Survey:

• The NAB business confidence index fell from +1.6 points to minus 2.0 points in April while the business conditions index improved modestly from minus 7.0 points to minus 5.9 points.
• The index of trading conditions improved from minus 5.0 points to minus 2.6 points; employment worsened from minus 5.7 points to minus 9 points; profitability improved from minus 9.3 points to minus 6.3 points; and forward orders weakened from minus 5.2 points to minus 6 points – the 25th straight month that forward orders have contracted.
• In terms of business conditions, NAB noted: “conditions improved markedly in mining (up 17 to +4 points), retail (up 15 to -8 points) and manufacturing (up 14 to -21 points). While the improvement in mining activity is a little surprising given the extent of falls in commodity prices over April, it is possible that the impact of earlier floods and cyclones has now subsided, providing some relief to miners. Transport & utilities and finance/ business/ property were the only industries to report a (moderate) deterioration in activity in the month – both down 4 points – with activity in the latter falling to its lowest level since June 2009.”
• Inflationary pressures are still restrained. The monthly reading of labour costs rose at a 0.7 per cent quarterly rate in April after a 0.8 per cent rise in March. Prices rose by 0.1 per cent after a 0.2 per cent fall in March. Retail prices rose by 0.1 per cent in April after falling at a 0.4 per cent quarterly rate in March. And purchase costs rose at a 0.4 per cent quarterly rate in April, after a 0.5 per cent rise in March.
• Capacity utilisation eased from a five-month high of 79.9 per cent in March to 79.6 per cent in April, and below the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit stood at 68 per cent in April.

Why is the data important?

• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
• The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

What are the implications?

• The housing market is in recovery mode. The good news is that more loans are being written to build homes and to buy newly-erected homes. But more may need to be done to entice first home buyers into the market.
• The latest rate cut, stable job market and state government grants will continue to lift home building, representing good news for developers, building material suppliers and retailers of housing-related goods like carpets and whitegoods.
• Business conditions should lift in coming months in response to the rate cut and housing pick-up.
  There is no need for a follow-up rate cut from the RBA. Financial market pricing suggests a 22 per cent chance of another rate cut in June.