The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates data for the month of January:
Total credit provided to the private sector by financial intermediaries rose by 0.2 per cent over January 2013, after increasing by 0.4 per cent over December. Over the year to January, total credit rose by 3.6 per cent.
Housing credit increased by 0.4 per cent over January, following an increase of 0.3 per cent over December. Over the year to January, housing credit rose by 4.4 per cent.
Other personal credit decreased by 0.1 per cent over January, after increasing by 0.2 per cent over December. Over the year to January, other personal credit decreased by 0.3 per cent.
Business credit was unchanged over January, after increasing by 0.7 per cent over December. Over the year to January, business credit increased by 2.8 per cent.
A chart showing the long-run breakdown in the components is provided below:
As you can see, personal credit growth (-0.1% MoM; -0.1% QoQ; -0.3% YoY) continues to deleverage, whereas business credit growth (0.0% MoM; 0.1% QoQ; 2.8% YoY) and housing credit growth (0.4% MoM; 1.1% QoQ; 4.4% YoY) remains postive in annual terms, but are at subdued levels relative to their long-run average growth rates.
Focusing on the housing market, annual credit growth has now hit a fresh all time (36-year) low of 4.4%. However, as shown by the below chart, housing credit growth looks like it might have bottomed (at least for the time being):
Finally, a breakdown of owner-occupied credit (0.3% MoM; 1.0% QoQ; 3.9% YoY) and investor credit (0.5% MoM; 1.3% QoQ; 5.6% YoY) is provided below:
As you can see, much of the current mortgage demand is being driven by investors, which has also been reflected in recent housing finance data from the Australian Bureau of Statistics.
unconventionaleconomist@hotmail.com
Rising house prices on deflating credit – Keen, where are you? Another let-down.
It’s reaching saturation……
Keen needs to factor in the diminishing effects of lowering interest rates into his model.
Keen is hiding after the good joke he did on so many gullible with his “work”.
The guy manages to strongly assert the link between houses prices and credit acceleration while showing a 0.65 correlation on his graph LOL( without even listing the pearson).
Can we get our terminology right please? Housing credit is still inflating, not deflating – ie it is growing. The rate of growth is slow compared to historical averages, and has been falling, but remains positive.
How does this fit with house price rises? Well it suggests to me that any further rises will be moderate, and/or localised. But it is also worth remembering that savings have been building in recent years, so some of those savings may be going into house purchases, thus reducing the demand for credit some.
This fits in relation to Keen’s theory which links credit growth ‘acceleration’ to house prices, not just credit growth. This acceleration if I understand it correctly has been negative for some time but house prices still growing.
see my link below
The word I meant to use was “decelerating”. There’s no edit button so I decided just to leave it guessing that everyone would get the jist of what I was saying.
Here’s Keen’s latest on this issue
http://www.debtdeflation.com/blogs/2013/02/05/mortgage-acceleration-house-price-changes-the-result/
“The correlation coefficient between these two series was 0.853 before the most recent data; it has now dropped slightly to 0.84.”
changing the time frame to get a better correlation, how convenient and serious
2000-2012 corr 0.65
http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/b645ef5282c65271e9257a90006ac690/bodyrich/114.4648!OpenElement&FieldElemFormat=jpg
2007-2012 corr 0.84
still no show of r
Prof Keen theory is actually quite good, just the interpretation what the graph is really showing requires some fine tuning. Credit Impulse (or his Mortgage Acceleration variant) was clearly indicating the likelihood of an uptrend in property prices since early 2012… CI turning up while in negative territory is a strong positive signal. Keen insisted it will keep falling… Now CI is in a positive territory and it is still rising (although possibly levelling out in March Qtr based on preliminary results).
http://www.debtdeflation.com/blogs/2013/02/05/mortgage-acceleration-house-price-changes/
I second gonderb, and add that Keen finds that the second derivative of the housing credit balance is useful for predicting the first derivative of prices. That is, the acceleration of housing credit correlates strongly with the change in in price level.
This is in fact true.
Here’s my plot (correlation coefficient of 0.5)
http://dl.dropbox.com/u/3997716/KeenCorr.png
The actual coefficient depends a lot on the data smoothing techniques and so forth.
Of course, the next step is to weight the credit growth by volume of trades to predict price change. I might even do that tonight and make a whole post out of it.
“I might even do that tonight and make a whole post out of it.”
Please do so, I (for one) would be very interested
Me too.
reusachtige,
Credit is not deflating until those lines cross below zero.
reusachtige the rate of decrease is flattening out or even picking up depending on the graph. That is acceleration. How’s your calculus? Wrong derivative.
So, fuelled by record low interest rates, mortgage debt (which has never stopped growing) is now accelarating.
Mission accomplished RBA.
http://finance.townhall.com/columnists/markcalabria/2013/02/12/the-long-run-decline-in-actual-homeownership-n1510358?utm
“…..It would be far more accurate to label U.S. federal homeownership policy, U.S. mortgage policy. For the primary means of “extending” homeownership, via federal policy, has been the massive increase in mortgage debt. Sadly the actual trend increase in homeownership has been close to nothing since 1960.
If the ultimate intent of housing policy is to help build wealth and enable families to have something to pass along to future generations, then the right measure should be home equity. Even better measure would be the percent of homeowners who own their homes free and clear, that is without any mortgage. As long as there is any mortgage, even a small one, the bank has some ability to foreclose if you are in default……it’s hard to say you really “own” it unless it’s all yours.
Currently the percentage of homeowners that own without any mortgage is just under 30 percent. Prior to 1960, an actual majority of owners held their homes with no mortgage at all. For most of American history, the typical homeowner did not have any mortgage, not having to answer to a bank and also having some wealth to pass along to future generations.
The primary impact of US homeownership policy has not been to increase homeownership, but to increase debt along with driving up house prices. Not a bad outcome if you’re a mortgage banker or a real estate agent. But not exactly a good deal for home buyers. Yes this has also helped increase the average size of homes, but helping everyone live in a McMansion hardly seems like a compelling public policy goal. And yes, reducing our reliance on debt for purchasing a home would result in lower prices, a huge win for renters….”
As someone in debt will have some fear of the consequences of a loss of income the presence of debt is likely to make them more risk averse and less confident generally.
Somewhat ironic that the lack of confidence to borrow and invest that Mr Swan finds so disturbing is likely due to the enormous household debts that the RBA are still desperately trying to encourage with near ZIRP policies.
And so it is the case fornOZ, 47% to the current 32%. So much for that property boom hey.
What amazes me about the long term chart is that RBA and govt thought that the extremely high rates of growth outside of the recession periods of 82/3, 91/2, 2001 and 2008/9 were OK.
With say 1.5% population growth and 3% inflation, credit growth over 5% ought be ringing alarm bells.
To me the long term graph and the housing credit growth both show a total failure of policy by government and the RBA.
4 to 5% credit growth ought be thought of as a normal range other than from 6 months before a recession to 12 months after it and is an appropriate average across the cycle for stability.
“…..the long term graph and the housing credit growth both show a total failure of policy by government and the RBA….”
Absolutely. And if you threw in graphs of what was happening to productivity, and what was happening to the tradables sector of the economy, the absoluteness of the failure should be glaringly evident to all.
As I keep saying, a property market with distorted “supply” that does not keep up with natural short run demand “shocks” renders monetary policy impotent. You cannot kill the bubble without killing the productive sector, and the productive sector is killed anyway when “easing” merely results in the credit growth all going to the property bubble, not to productive capital. The costs to the productive sector are increased either way.
It is like a cancer that can only be killed by chemotherapy that would kill the patient anyway. Housing supply reform is like the surgery that is really needed.
1.7 million temp visa holders and approx 600,000 of those as international students who are counted in our pop growth rates. Dumb as….
Many burbs in all capital cities have had a declining population and yet prices still went up. The end game is when these burbs with lone occupants die. Who can afford to buy their homes in Jindallee, Rochedale etc for Brisbane.
You surely must know by now that the RBA are debt merchants. Therefore any supersized growth in debt is in fact the name of the game regardless of the consequences. More debt = more profit for commercial banks who the RBA seems soley to represent.
Anyone with half a brain would figure that double digit debt growth (aka our housing debt bubble)is not going to end well for an economy, but with million dollar wages and bank data available on request, the RBA seems to simply ignore what they are meant to observe to create financial stability. Moving right along. Their function in the economy to me seems completely mispresented to the point where their stated and real objectives are the complete opposite.
How come this has no effect on banks profits? Can they just offset by reducing costs, or something to look out for in 2013?
They are already making profits from all the existing debt slaves they have captured; a slowing in the rate of increase of capture of debt slaves would not not lead to a fall in profits.
The graphs are graphs of the rate of growth, not the level of debt. If the level of debt were graphed, it would merely be rising a lot less steeply now than what it used to be.
On the contrary Phil, Jan 2013 mortagage debt growth is now accelarating again.
(BTW Leith, the years labeled on the horizontal axis of the second chart are one year out.)
Thanks Pat. Fixed.
Hmmmmm, I doubt that Jan 2013 acceleration will last long; and the “trend” is all down.
Alternative headline:
Aus mortgage debt reaches record highs.
“housing credit growth looks like it might have bottomed”
Since February, March & April 2012 were the strongest months for housing growth over the last 12 months, the 12 month growth figures may drop for a few more months, depending on how strong the growth is in the next 3 months.
I would put my money on a bottom in February, not this month.
With the winding back of FHB grants and no income tax cuts / middle class welfare handouts on the horizon its going to be interesting how low, and for how long Owner Occupied Mortgage growth will struggle. It’s going to be a long grind.