Rate cut drives investor activity

Housing Finance; Consumer confidence; Credit & Debit Cards

• Home loans: The number of loans (commitments) for people who are buying or building homes to live in (owner-occupiers) rose by 1.6 per cent in March. The value of all loans rose by 3.5 per cent with owner-occupier loans up by 1.6 per cent while investment loans rose by 6.4 per cent.
• The value of loans by owner-occupiers and investors to build new homes rose by 8 per cent to $2.69 billion in March.
• Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.7 per cent in the week to May 10 to 110.6.
• Credit cards: The average credit card balance rose by $11.50 (0.4 per cent) to $3,234 in March. Compared with a year ago, the average credit card balance was down by 0.2 per cent – well below the rate of inflation.
• Scope to spend: The average credit card limit fell by $34.60 to $9,029.80 in March to be up 0.4 per cent over the year. Usage of credit card limits lifted modestly from the 13-year low of 34.9 per cent in January.

What does it all mean?

• The latest housing finance statistics are certainly encouraging. And especially encouraging when you consider that the result was for March – following the February rate cut and prior to the May rate cut. It is clear that low rates are the biggest driver of the lift in housing activity, in particular when it comes to investment loans. The value of investment loans surged by 6.4 per cent in March. No doubt regulators would like to see more circumspect growth in investor housing. Importantly the latest changes to lending policy by some of the regulated banks should go some way in alleviating concerns about speculative property investments in coming months.
• Overall the further lift in housing construction activity will be important in alleviating longer term concerns around the ongoing lift in house prices. Interest rates are at record lows and we haven’t been building enough homes to house our growing population. Activity levels in the new home building sector will continue to lift and should provide further support to an array of dependant sectors over the rest of 2015. The boom in home construction has been a key driver of the lift in retail activity. Housing is always a function of demand and supply and the ongoing lift in the new supply of homes will lead to slower growth of home prices and reduced interest by investors.
• The recent lift in consumer confidence can be tied to the lift in the Australian dollar. Most households would prefer a higher Australian dollar (cheaper overseas goods, overseas travel and lower fuel prices). However in contrast for the broader economy a cheaper Aussie dollar would provide an additional boost to exports and support overall economic growth.
• Consumers continue to be savvy about card use. The average credit balance has barely budged over the past year, despite an inflation rate near 2 per cent. So credit card debt is falling in real terms. Cardholders are frequently paying off credit card debt by the due date and using cards to maximise loyalty points.

What do the figures show?

Housing finance

• The number of new owner-occupier housing loans (commitments) rose by 1.6 per cent in March. Excluding the refinancing of dwellings, the number of loans was up by 0.3 per cent.
• The number of loans by owner-occupiers for the construction of homes fell by 1.8 per cent in March. The value of construction loans fell by 2.7 per cent in the month.
• The number of loans by owner-occupiers to buy newly-erected dwellings rose by 2.9 per cent in March and the value of loans rose by 2.2 per cent.
• The number of loans by owner-occupiers for the purchase of established dwellings (excluding refinancing) rose by 0.5 per cent in March and the value of loans rose by 1.9 per cent.
• The number of refinancing transactions by owner-occupiers rose by 4.0 per cent in March. The value of refinancing transactions rose by 2.2 per cent.
• The number of owner-occupier home loans across states/territories: NSW (+1.1 per cent); Victoria (+1.1 per cent); Queensland (+1.4 per cent); South Australia (+2.4 per cent); Western Australia (+1.0 per cent); Tasmania (-4.6 per cent); Northern Territory (-0.7 per cent); ACT (-1.8 per cent).
• The value of new housing commitments (owner occupier and investment) rose by 3.5 per cent in March with owner-occupier loans up by 1.6 per cent while investment loans rose by 6.4 per cent.
• The value of loans by owner-occupiers and investors to build new homes rose by 8.0 per cent to $2.69 billion in March. The value of loans to build did hit a record high $2.88 billion in December 2014.
• The proportion of first-time buyers in the home loan market fell from 15.1 per cent in February to a near 11-year low of 14.7 per cent in March. (However the figures take into account refinancing loans and as such the figures may be skewed). First home buyer loans remain well below the long-term average of 19.8 per cent. Fixed rate loans fell from 10.8 per cent to 10.5 per cent of all loans in March – a 3½-year low. And the average home loan across Australia stood at $342,500 in March, up 7.3 per cent on a year ago.

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating rose by 1.7 per cent to 110.6 in the week to May 10, but remained below the average since 2014 of 111.3.
• The Three of the five components of the index rose in the latest week:
  • The estimate of family finances compared with a year ago was up from +2 to +8;
  • The estimate of family finances over the next year was up from +19 to +24;
  • Economic conditions over the next 12 months was down from -9 to -10;
  • Economic conditions over the next 5 years was up from +3 to +4;
  • The measure on whether it was a good time to buy a major household item was down from +29 to +27.

Credit card lending:

• Figures released from the Reserve Bank show that the average credit card balance rose by $11.50 (0.4 per cent) to $3,234.00 in March. Compared with a year ago, the average credit card balance was down 0.2 per cent. In smoothed terms (12 month average) the average balance was up by almost 0.1 per cent.
• Of credit cards attracting interest charges, the average outstanding balance fell by $4.00 in March after rising by 40c in February. The average balance accruing interest is down by 4.9 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 4.1 per cent.
• In March the number of credit card accounts was up 3.1 per cent on a year ago.
• The average credit card limit fell by $34.60 to $9,029.80 in March. The average credit card limit rose by 0.4 per cent in the year to March. Usage of credit card limits had fallen to a 13-year low of 34.9 per cent in January.
• The average repayment per credit card rose from $1,436 in February to $1,692 in March – the second highest reading on record.
• On average, there were 12.1 transactions made per each credit card account in March, up from 10.5 transactions in February and up from 9.8 a year ago. The average value of purchases was $115.99 in March.

Debit card lending:

• The number of debit card accounts rose by 5.4 per cent in the year to March to 40.6 million.
• The number of purchases and cash-out transactions made with debit cards in March were up by 13.4 per cent on a year ago. The annual growth rate has averaged 12.4 per cent over the past two years.
• On average there were 8.5 transactions made per debit card in March, up from 7.5 a year ago. The average value of a transaction was $53.90.

What is the importance of the economic data?

• 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 ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
• 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.

What are the implications for interest rates and investors?

• More and more Aussies have been either building or buying homes. We expect the sector to receive another boost with the May rate cut and the low interest rate environment will dominate the landscape over the coming year.
• CommSec expects the Reserve Bank to discuss the merits of another rate cut at upcoming meetings. Confidence will play a big part in determining if interest rates need to be cut again.