Housing ponzi stumbles on

The RBA’s lending January credit aggregates were out yesterday and the reading is fascinating.

It is no surprise to regular readers that the rate of credit growth in Australia has slowed, a phenomenon it calls disleveraging. January’s credit was a continuation of the several months before it. Owner-occupied mortgages grew month on month at a seasonally adjusted and annualised 6.6%. On the same measure, investor credit grew 7.4%. Year on year growth rates were 7% and 8.4% respectively.

Revolving credit was up a seasonally adjusted 1.8% year on year. And business credit continues its slide down 4.2% year on year. Revolving credit is back to June 2007 levels and business credit is back to November 2007 levels.

What is so intriguing about these figures is that they were accompanied by the following announcement from Rismark:

National city home values slumped 1.6 per cent, seasonally adjusted, to $465,000 after rising 0.2 per cent in December, according to RP Data-Rismark figures. Outside cities, they declined 1.2 per cent in the month.

7% credit growth is not enough to keep house prices up. In fact, since credit growth fell below 8%plus in March 2010, prices have gone sideways and are now sliding slowly but surely. Nine percent is roughly the level required to inject growth.

Despite this, acccording to Bloomberg, mainstream economists are still all in for rate rises and inflation, resulting from a surge in consumer spending:

The Reserve Bank of Australia is showing no signs of raising interest rates at a time when fixed- income markets are signaling the biggest increase in inflation expectations in more than a year.

RBA Governor Glenn Stevens will leave the overnight cash rate target at 4.75 percent tomorrow, with a 52 percent chance he won’t increase borrowing costs until the end of the third quarter, bank bill futures indicate. One-year inflation swaps have risen 57 basis points since December, the most since September 2009.

Stevens’s willingness to pause contrasts with central bankers from Beijing to Frankfurt who are trying to stamp out inflation with higher rates or by signaling monetary policy needs to be tightened. The RBA, which raised rates seven times from October 2009 to November last year, is favoring growth over price restraint as the country recovers from flooding and cyclones.

“The risks to inflation are almost all to the upside,” said Paul Bloxham, the chief economist at HSBC Holdings Plc in Sydney and a former RBA official. Factors restraining consumer prices including an appreciating currency and weak household spending are unlikely to persist, while pressures from areas such as power prices and higher wages will intensify, he said.

Bloxham may be right. Then again, he may not. Why won’t consumers persist in this rational behaviour? It seems to this blogger that using all of that new income to pay down debt, which is precisely what it is doing now, is very much the sensible thing to do in this over-indebted and highly unstable world, as Deputy Governor of the RBA, Phil Lowe, so beautifully illustrated recently.

And what of those of the speculative mind on which Bloxham is using his dog whistle? As a survey by Adele Ferguson in The Age noted recently:

The perception by 80 per cent of a panel of 2000 Australian investors is that if property prices start to rise, the RBA will again intervene and raise interest rates.

Prospective first-home buyers were only slightly less wary of the RBA with 73 per cent seeing renewed capital growth a trigger for rate rises.

Evidently, such lacklustre sentiment as this is insufficient to sustain 9% plus mortgage growth. And without it, the ponzi scheme can barely sustain itself.

Houses and Holes


  1. Must say I take Rismark’s recent data with a grain of salt, especially when you consider it has been on the soft side and the last two releases have occurred the day before an RBA meeting.

  2. The problem with the RBA credit aggregates is that they do not provide us with a breakdown of the make-up of the increase.

    Is the increase due to new loans being taken by new borrowers, or, is the increase due to refinancing by existing borrowers who also tap into the ‘equity’ of their homes?

  3. Some of these guys are fascinating, they can never comprehend people saving and paying down debt. It’s reminiscent of the Peter Schiff vs Art Laffer video. Laffer’s head explodes at the suggestion the American consumer will go into the tank to rebuild their finances.

    Consider the household response if they get a sniff of these RP Data figures. A bit of home equity evaporation might make their mood even more conservative.

  4. Australia needs more than one billion dollars every day – that’s one thousand million dollars each and every day – to avoid default on its foreign debt, yet we seem to be basking in the illusion that we are not a future Greece !

    Australia is now in a worse foreign debt position than Hungary and ranks as the 11th most indebted nation on earth. With gross external debts (equity and debt) of over 2 trillion and a debt to GNP ratio exceeding 100%, Australia sits well within the field of European countries facing a bleak future !

    Australians should be able to hear clearly the “tick tick tick” of our own debt bomb. But government and business refuse to talk about it…… Why ?

    Australian Property Crash Forum

    • they refuse to talk about debt because every $ has to be borrowed into existence, when people save the money supply contracts, thats why the gov starts borrowing instead and why we have reached this mess because they dont want to allow liquidations, they like to keep big corps going its called market socialism.

  5. From BS:


    Why are banks flush with funds? First, last year they lifted deposit rates and attracted a lot of self managed superannuation fund deposit money. Second, although the $130 billion required by banks from the overseas wholesale markets for the current financial year was high, they met their requirements.

    Can anyone confirm what is said in the above BullSh!t article?

  6. Freddie Goethe

    “7% credit growth is not enough to keep house prices up. In fact, since credit growth fell below 8%plus in March 2010, prices have gone sideways and are now sliding slowly but surely. Nine percent is roughly the level required to inject growth.”

    It isn’t necessary to go back far to show this to be simply false. House price growth from March 2009 to March 2010 was 18.8% nationally (ABS figures). Housing credit growth never reached 9% during any of that time or in the 6 months before it. In fact during much of that time (Feb 2009 to July 2009) housing credit growth was below its current 7.3% rate. There must be other factors.

  7. Hmmm, yes I checked and you’re right, growth was at similar levels in periods of later 2009.

    But the point stands. My guess is that the difference might be foreign buyers of property, which were rumoured to use a lot of cash. (Or, may have borrowed offshore).

    Although there’s not much hard evidence, rumours were rife that foreign buyers charged the market after liberalisation.

  8. I think you may find your “other factors” here.



    It would seem that the current credit growth simply isn’t keeping up with the demand to sell at the current prices.

    Is it demographics ? is it investors fleeing the market ? is it young people who have given up?

    I don’t know, but it doesn’t matter.

    It simply seems that the growth in credit is not meeting the current level of people who wish to sell their properties. So although houses are selling, more and more are coming onto the market to replace them.

    In 2009 it seems that this was not the case because the level of stock was dropping as sales were being made. That is no longer occurring so although we have rising credit we also have falling prices.

    The two are not mutually exclusive it would seem.

    When the median prices are near static I do wonder how exactly credit is supposedly growing at its current rate when I see sale volumes graphs like this


    and this


    I would expect to see a large movement to the upside if credit is growing and sales are falling. But maybe that is how hedonic indexes work ??

    • Great links BrokenModel. The volume looks to be dropping away terribly in Melbourne yet it’s Brisbane (and Perth) where house prices are said to be stumbling the worst.

      Great post David. I would love to hear more about why it takes 9% credit growth to hold house prices up. I seem to recall reading that anything less than 10% does not bode well for the property lobby. BTW, is that housing credit or overall credit? Be great to work out just what happened Mar-09 to Mar-10 as pointed out by Freddie.

      Mark above was curious about the makeup of the credit. For house prices, I’d imagine that it’s overwhelmingly the housing credit that makes the difference. I believe you don’t have to worry whether it’s new credit to first home buyers (although those stats are available) or simply refinacing or upgrades from existing borrowers because the credit growth is the net increase. I do wonder about lines of credit though – these would not fuel house prices. I wonder if when you draw on a line of credit that it goes into the ABS aggregate or only when the limit is set at the beginning. Hopefully lines of credit are not included in the housing credit figure, otherwise they need to be removed when considering how the credit drives house prices.