Debt revulsion deepens

More dud data from the ABS this morning in Finance Commitments. Following are the key points.




  • The total value of owner occupied housing commitments excluding alterations and additions fell 1.0% in trend terms and the seasonally adjusted series fell 4.8%


  • The trend series for the value of total personal finance commitments fell 2.3%. Revolving credit commitments fell 3.0% and fixed lending commitments fell 1.6%.
  • The seasonally adjusted series for the value of total personal finance commitments fell 3.5%. Fixed lending commitments fell 5.0% and revolving credit commitments fell 1.8%.


  • The trend series for the value of total commercial finance commitments was flat (0.0%). Revolving credit commitments rose 1.3%, while fixed lending commitments fell 0.5%.
  • The seasonally adjusted series for the value of total commercial finance commitments fell 6.6%. Fixed lending commitments fell 9.9%, while revolving credit commitments rose 1.0%.


  • The trend series for the value of total lease finance commitments fell 0.9% and the seasonally adjusted series fell 10.4%.
  • We already know about the month on month crash in mortgages in February but debt revulsion is obviously much more widespread than that. Following is a graph of other personal lending, fixed for goodies like cars, and revolving for other credit card usage. It includes February data.

    In seasonally adjusted terms, we are at levels for credit card usage first seen 2002. Fixed loans are a little better at 2006 levels.

    Unsurprisingly, also in seasonally adjusted terms, commercial loans follow a similar trend. This graph also includes February data.

    A few comments. Please ignore any analyst that tells you the consumer is robust. She is not. Perhaps things will improve from here for retail on growing incomes but I have my doubts. If anything, people seem to be saving more, in more places.

    There is no sign at all of a bounce in business lending that was apparent in RBA credit aggregates for February. Quite the opposite. The banks are going to have to keep dropping lending standards and/or squeezing margins for top line growth.

    Houses and Holes
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    1. From the ABS housing finance release:

      “At the end of February 2011, the value of outstanding housing loans financed by authorised deposit-taking institutions (ADIs) was $1,062,822m, up $5,513m (0.5%) from the January 2011 closing balance. Owner occupied housing loan outstandings financed by ADIs rose $4,306m (0.6%) to $742,346m and investment housing loans financed by ADIs rose $1,207m (0.4%) to $320,476m.”

      Housing debt is rising – much faster than inflation. So much for “Debt Revulsion”.

    2. Sarah, from above:

      “The total value of owner occupied housing commitments excluding alterations and additions fell 1.0% in trend terms and the seasonally adjusted series fell 4.8%”

      • That’s just saying that the new mortgages in Feb were 1% less than the new mortgages in January. Housing debt rose – 0.5% in one month. That’s hardly debt revulsion or mortgages crashing.

        • The rate we are taking on new debt is falling, but the absolute number is bigger than its ever been. i.e. the second derivative is negative as Roubini was fond of saying during the financial crisis.

    3. “We already know about the crash in mortgages…”

      The total value of mortgages is now greater than at any time in the past, even in real terms. The average per capita mortgage, even in real terms, is also at an all time high.

          • Do you actually get out and TALK TO PEOPLE, or just to numbers?

            People on the street are struggling.

            Get out of the ivory tower and speaking to lawyers, doctors and finance people, please…

            And, what’s more, we SHOULD expect non-mortgage items like utilities, personal loan arrears, e tc to go up first, before it really follows through to mortgages…and that is exactly what is happenning.

    4. Does this mean that, because the number of houses being sold is significantly down that the increase of home loan debt and the reduction of personal debt is the average person re-financing to pay off their credit cards etc?

      • Talking of the “other side”, Adam Carr is on fire today!

        Adam takes on the “pessimists”…

        On the street it’s a different matter. I’m talking to your average man – traders, tradesmen, business people, retailers, restaurateurs, architects, etc. You know, the people that you meet when you’re walking down the street. None of them are seeing all the pessimism that is frequently plugged to us. They are certainly reading about it, but seeing it? No. The reality is there is not much wrong. Interest rates are still low by historical standards, barely restrictive actually, the unemployment rate is low, consumer spending is robust and so it goes.

        • What the eternal myopic economic optimist who has never read Hayek, nor understand classical economic theory, hell bent on feel good speils .. and does not understand what transpires after a global financial crisis, although 800 years of empirical evidence posted by Reinhart and Rogoff.

          God bless him, we need his optimism .. this time IT IS different!

    5. Read em and weep. High numbers of real estate listings, low clearance rates, record household debt, skewed unemployment figures (many low grade jobs = unable to sustain cost of living without gov’t assistance), CPI rising fast, dollar rising fast, interest rates sure to follow, manufacturing in decline, consumer spending down. Smacks of Ireland/UK/US pre GFC. Hold on tight, its gonna be a bumpy ride!
      Cheers, Barry

    6. Hi Sarah, As a lender at one of the big four I can tell you people are refinancing and debt consolidating in droves. Lending up by the most in six months took eight new applications last week. In February I took just nine. Of the eight new applications four were refinances from other finance companies, two are increases to debt consolidate and two are purchases, one investment property and one owner occupied. In march the split was very similar. We are taking business from other banks and that seems to be the goal of our management here in Qld.
      I have seen the figures for all other branches in our region and the only locations I could see that did mostly purchase financing was Indooroopilly, St Luca, Toowong with reasonable figures at Hamilton and Ascot. Valuations for properties are horrendous and making it difficult to get loans approved without mortgage insurance applying, most can’t or won’t pay the LMI.

      I can see the figures in absolute terms may rise but a large chunk of that is refinance and debt consolidating. This is excatly what happened in the US, Ireland and the Uk before it all went pear shape.

      • Thanks for your workface details. The point I was making was that debt is not crashing – it is still rising faster than the population and inflation combined. That some of it may be refinancing doesn’t change that fact. Refinancing doesn’t indicate “debt revulsion”. February saw a net increase of $5.5 billion (O.5%) in housing debt compared to January. In fact there was nothing special about the level of refinancing in February. Column D of the following ABS table shows that refinancing in Feb was less than any month between May and December 2010.$File/5609011.xls

        • We’re looking at a debt spiral – debt to cover debt; getting a new credit card to pay the other. All bad.

          • that is a good point Johnno – the stats don’t tell us about the quality of the debt. Quality of the debt – matters – a lot.

        • Oh she’s good.

          Sarah, can we say that Australian’s willingness to take on new debt has waned in recent months? Seems to be weakest Personal Finance Commitments since the depths of the financial crisis. The raw numbers for January seem particularly weak.

          Obviously its still a sh*t load of new debt every month, so its hardly “revulsion”, but equally we’re not taking on new debt with quite the same gusto as we were a year ago.

        • Sarah P,

          We have a long way to go before we reach the end of this downward trend. These figures are the beginning of the beginning. No way could this be described as “debt revulsion”.

          The punters who jump in for a “bargain” in step change 1 and 2, at a hefty LTV, will be sold up in step changes 5 and 6. Likewise those deluded souls who refinance themselves out of trouble by going deeper into debt without changing their lifestyle and spending habits.

          • I should have qualified “deeper into debt”. If you load a credit card debt into a 30 year mortgage and the nominal amount of your overall debt remains constant that is still “deeper” in my opinion.

    7. Lorax,

      I know some retailers too and they haven’t seen it this consistently slow as long as they can remember. Call it robust if you like, it certainly isn’t a collapse. That said, it’s definitely a new trend that is much lower than old growth levels.

      There’s not much point in calling both the old and new trends robust now is there?

      Moreover, retail floorspace is built around the old trend. Expect more Colarados

      As I recall, the last time Adam took on the pessimists he ended up retracting half the article and produced a chart that clearly demarcated the new lower trend.

      • I stick by the reverse ripple theory of metropolitan home price corrections, outlying suburbs impacted at the start of the GFC and then peripheral sub-markets effected.

        Halted due to the Government introduction of the 1st home buyers grant, yet forced down business owners throats by the Bankers; who revalued at fire sales values, for their own benefit.

        As hand outs finished and 2nd / 3rd home buyers settled in; courtesy of the cash to first home buyers; the full impact being slowly felt.

      • Oh come now, you’ve hardly got the common touch Adam does! Adam’s the Bob Hawke of economists!

      • “Moreover, retail floorspace is built around the old trend. Expect more Colarados”

        Touche` … then those that own and / or manage the floorspace may do a market rental review that will go down … do not hold your breathe!