What does it all mean?

• In short, the latest private sector credit or lending data is encouraging, particularly given that the lift in credit continues to be relatively broad-based. It wasn’t surprising that housing credit continued to be the main driver but the rise in business borrowings is a huge positive – particularly in light of the recent improvements in labour market conditions and business hiring intentions.
• Business conditions are healthy and it seems to be translating through to a lift in business borrowings, with annual growth coming in at 2.7 per cent – a 15-month high. At the same time, investor housing credit is growing at the fastest pace in 3½-years and will support the broader economic recovery.
• But apart from taking out loans to buy investment properties and the encouraging lift in business activity. Aussie consumers remain reluctant to borrow. Personal debt is still down almost 9 per cent on the peak recorded six years ago and the level of debt effectively hasn’t budged in five years. And the negative backlash and concerns over the Federal Budget is unlikely to result in a shift in the inherent level of consumer conservatism in coming months.
• The private sector credit figures are important because they are part of the Reserve Bank’s assessment of financial conditions. The level of interest rates, asset prices (home prices), the Aussie dollar and credit are the four factors the Reserve Bank assesses to determine financial conditions. Credit is lifting of a low base, home prices are rising and it has resulted in an improvement in discretionary spending in recent months.

What do the figures show?

Private sector credit

• Private sector credit (lending) rose by 0.5 per cent in April after a 0.4 per cent rise in March. Annual credit growth rose from 4.4 per cent to 4.5 per cent – the strongest growth in five years.
• Housing credit grew by 0.6 per cent in April after a 0.5 per cent rise in March. Housing credit is up 6.1 per cent on a year ago – the strongest annual growth in 3 years.
• Owner occupier housing credit rose by 0.5 per cent in April to stand 5.0 per cent higher than a year ago. And investor housing finance lifted 0.8 per cent in April to be up 8.2 per cent over the year – the strongest growth in 3½-years.
• Personal credit was flat in April after falling by 0.1 per cent in March. Personal credit was up 0.5 per cent over the year.
• Business credit rose by 0.3 per cent in April. Business credit is 2.7 per cent higher than a year ago – the best result in 15 months.
• Term deposits held with banks fell by $2 billion in April to $536.3 billion, the lowest result in 22 months. Term deposits are down 1.2 per cent on a year ago – the biggest annual decline in 11 years.
• 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.
• The Reserve Bank would be happy to see more “risk” taken on by investors – money moving from term deposits to property investments. But overall it is clear that Aussie consumers in general are reluctant borrowers and that means the Reserve Bank doesn’t need to be in a rush to lift interest rates. Credit growth is still modest and inflation is under control. Seemingly “normal” annual credit growth is now 4-5 per cent, as opposed to the 8.3 per cent decade average and 11.8 per cent long-term average.

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?

•  The Reserve Bank would be happy to see more “risk” taken on by investors – money moving from term deposits to property investments. But overall it is clear that Aussie consumers in general are reluctant borrowers and that means the Reserve Bank doesn’t need to be in a rush to lift interest rates. Credit growth is still modest and inflation is under control. Seemingly “normal” annual credit growth is now 4-5 per cent, as opposed to the 8.3 per cent decade average and 11.8 per cent long-term average.

• Private sector credit (lending) rose by 0.4 per cent in July after a 0.4 per cent rise in June. Annual credit growth rose from 3.1 per cent to 3.2 per cent.
• Housing credit grew by 0.4 per cent in July. Housing credit is up 4.7 per cent on a year ago, lifting further away from the 4.4 per cent annual growth rate recorded in May  – weakest annual growth in records going back to 1976.
• Owner occupier housing credit rose by 0.3 per cent in July to stand 4.1 per cent higher than a year ago. And investor housing credit lifted 0.5 per cent in July to be up 5.8 per cent over the year.
• Personal credit was flat in July after rising by 0.3 per cent in June. Personal credit was up 0.5 per cent over the year, after being flat or falling in annual terms for the past two years.
• Business credit rose by 0.4 per cent in July after a 0.5 per cent rise in June. Business credit is 1.3 per cent higher than a year ago.
• Monetary aggregates, M3 and broad money, improved modestly but remained near the lowest annual growth rate in three years.
  • There have been some glimmers of hope in the last few months of credit data, but it was still very early days. The modest lift in overall credit is a positive development, but there was more excitement within the details of the data. Investor housing finance recorded its best annual growth rate in two years, while business credit posted its best monthly gain in 13 months. There have been early indications in other statistics that people are starting to borrow again. And while it is important to highlight that the improvement are taking place of a low base, it may just be that the low interest rate environment are beginning to entice Aussie consumer and businesses.
  • In recent times the Reserve Bank has made mention of the lack of confidence amongst the business community and high savings rate amongst households. And while the Central Bank doesn’t expect a full blown turnaround in demand for credit, they have highlighted that super low rates are starting to result in a shift to more risky assets classes – interest rate sensitive areas of the economy are responding to the low interest rates on offer albeit it modestly.
  • Overall weak growth in outstanding debt together with low inflation means that the Reserve Bank can cut rates further if it believes it will be beneficial. However it comes down to how the economy reacts to a post-election environment.

What does it mean?

• Private sector credit (lending) rose by 0.4 per cent in July after a 0.4 per cent rise in June. Annual credit growth rose from 3.1 per cent to 3.2 per cent.
• Housing credit grew by 0.4 per cent in July. Housing credit is up 4.7 per cent on a year ago, lifting further away from the 4.4 per cent annual growth rate recorded in May  – weakest annual growth in records going back to 1976.
• Owner occupier housing credit rose by 0.3 per cent in July to stand 4.1 per cent higher than a year ago. And investor housing credit lifted 0.5 per cent in July to be up 5.8 per cent over the year.
• Personal credit was flat in July after rising by 0.3 per cent in June. Personal credit was up 0.5 per cent over the year, after being flat or falling in annual terms for the past two years.
• Business credit rose by 0.4 per cent in July after a 0.5 per cent rise in June. Business credit is 1.3 per cent higher than a year ago.
• Monetary aggregates, M3 and broad money, improved modestly but remained near the lowest annual growth rate in three years.

What does it mean?

• There have been some glimmers of hope in the last few months of credit data, but it was still very early days. The modest lift in overall credit is a positive development, but there was more excitement within the details of the data. Investor housing finance recorded its best annual growth rate in two years, while business credit posted its best monthly gain in 13 months. There have been early indications in other statistics that people are starting to borrow again. And while it is important to highlight that the improvement are taking place of a low base, it may just be that the low interest rate environment are beginning to entice Aussie consumer and businesses.
• In recent times the Reserve Bank has made mention of the lack of confidence amongst the business community and high savings rate amongst households. And while the Central Bank doesn’t expect a full blown turnaround in demand for credit, they have highlighted that super low rates are starting to result in a shift to more risky assets classes – interest rate sensitive areas of the economy are responding to the low interest rates on offer albeit it modestly.
• Overall weak growth in outstanding debt together with low inflation means that the Reserve Bank can cut rates further if it believes it will be beneficial. However it comes down to how the economy reacts to a post-election environment.

• Over the past six months we have made mention of the inevitable consolidation in the housing sector and it certainly seems to be in full swing. In fact over the first three months of 2011 property prices have fallen by 2.1 per cent marking the biggest quarterly slide in records going back seven years. And even in annual terms prices have recorded the first fall in two years. Whichever way you look at it the housing sector is decidedly weak, and more importantly there is no silver lining on the horizon to suggest a turnaround in fortunes is likely anytime soon.
• The sizeable 19 per cent slide in housing finance commitments over the first two months of 2001 clearly highlights the lack of home buyer interest. Added to which the latest private sector credit figures have revealed that housing credit has posted the weakest annual growth in records going back 33 years. The recent slide in property prices and more circumspect home buyers will result in sellers being more realistic about achievable prices in coming months.
• Effectively you can strike another item off the Reserve Bank’s worry list. The rate hikes delivered over 2010 have taken the heat out of the housing market ensuring that the normal supply-demand fundamentals are ruling the roost across capital city housing markets.
• Interestingly there are marked differences in home prices across the nation and it is a similar story when you look at rental yields. States like NSW has seen a significant amount of under building compared to the likes Victoria however the lack of supply – lower vacancy rates – in NSW has resulted in higher rental yields on offer.
• It is important to highlight that while the housing sector is cooling it is not about to collapse in a heap. Overall CommSec expects house prices to consolidate over the next few months, but for the year as a whole we would expect prices to lift by 5 per cent. The Reserve Bank is likely to remain on the interest rate sidelines in the near term, while healthy jobs growth, rising population and sliding rental vacancy rates will support housing activity in the medium term.
• The Australian economy has certainly lost momentum over the last couple of months. However the latest improvement in private sector credit is certainly encouraging especially given that modest increases have taken place over the last few months.
• Admittedly it is too early to claim a full blown turnaround borrowing activity, but it does seem like the lack of rate hikes over the past few months is allowing businesses and consumers to get back to basics. Personal credit recorded its best monthly increase since late 2009, added to which businesses borrowing also recorded its best monthly gain in 2½ years. The pickup in borrowings does have the potential to boost spending levels in coming months. It should be noted that the impact of the natural disasters may have artificially inflated the pickup in borrowings, but there has been signs of a modest improvement nonetheless.

House price prices

• The RP Data-Rismark Hedonic Australian Home Value Index fell by 0.2 per cent in March after a downwardly revised 0.5 per cent fall in the previous month.
• House prices fell by 0.2 per cent in the month while apartments fell by 0.3 per cent.
• Capital city home (dwelling) prices are down 0.6 per cent on a year ago – marking the first annual slide in property prices in two years. House prices are down 1.2 per cent and apartment prices are up by 1.4 per cent.
• Prices rose in just two of the seven capital cities in March with Darwin prices up 1.1 per cent, followed by Melbourne (up 0.6 per cent). Across the other cities prices fell most in Perth (down 1.9 per cent), Brisbane (down 1.4 per cent), Adelaide (down 0.7 per cent) and Canberra (down 0.4 per cent). Sydney prices were unchanged in March, while Hobart prices rose by 2.3 per cent in February (March data not yet available).
• Home prices are higher than a year ago in just Sydney (up 2.1 per cent) and Melbourne (up 1.0 per cent). Prices fell the most in Brisbane (down 6.8 per cent), Perth (down 6.4per cent), Darwin (down 1.3 per cent) and Canberra (down 0.5 per cent). Adelaide prices were unchanged on a year ago.
• March home prices aren’t available yet for Hobart. In the year to February, home prices in Hobart were down by 1.3 per cent.

• Private sector credit (lending) rose by 0.6 per cent in March after rising by 0.5 per cent in February. Credit growth is up 3.6 per cent on a year ago.
• Housing credit grew by 0.4 per cent with lending to owner-occupiers rising by 0.4 per cent and investor housing up 0.2 per cent. Housing credit is up 6.6 per cent on a year ago – the weakest annual growth in records going back 34 years. Owner occupier housing credit is up 6.5 per cent on a year ago – slowest pace in records going back 20 years. Investor housing lending was up 6.7 per cent on a year ago.
• Personal credit remained rose by 0.6 per cent in March after rising by 0.2 per cent in February. Personal credit was up 1.0 per cent over the year – still well below the rate of inflation. Business credit rose by 1.0 per cent in March, however was down 0.6 per cent on a year ago.

• The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database covering more than 340,000 sales during 2010. Unlike the ABS Index, which excludes terraces, semidetached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.
• The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results would compare the end of March index with the end of December index.
• 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.

• The rate hikes have certainly taken their toll on the housing sector over the past year and unfortunately for the sector it is unlikely that a turnaround is going to take place anytime soon. Overall CommSec expects house prices to consolidate over the next few months, but for the year as a whole we would expect prices to lift by 5 per cent.
• A softening in home prices combined with the prospect of interest rates remaining unchanged for the next few months is clearly positive for budding home buyers. Less doom and gloom stories about interest rates and unsustainable home prices will be beneficial for consumer sentiment more generally.
• The improvement in consumer and business credit is certainly encouraging, but to claim a sustained improvement the Reserve Bank will need to stay on the interest rate sidelines for another couple of months. More importantly there is nothing in the data to date to force the Reserve Bank to raise interest rate in the near term.