Housing credit growth weak in August

By Leith van Onselen

The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates, which registered a small decrease in total credit growth in the month of August, but the third lowest monthly housing credit growth in the series’ 35-year history and the lowest quarterly and annual mortgage growth ever recorded:

Total credit provided to the private sector by financial intermediaries rose by 0.2 per cent over August 2012, after rising by 0.2 per cent over July. Over the year to August, total credit rose by 4.1 per cent.

Housing credit increased by 0.3 per cent over August, following an increase of 0.3 per cent over July. Over the year to August, housing credit rose by 4.8 per cent.

Other personal credit decreased by 0.3 per cent over August, after falling by 0.3 per cent over July. Over the year to August, other personal credit decreased by 1.4 per cent.

Business credit decreased by 0.1 per cent over August, after growing by 0.1 per cent over July. Over the year to August, business credit increased by 4.0 per cent.

A chart showing the long-run breakdown in the components is provided below:

Personal credit growth (-0.3% MoM; -0.8% QoQ; -1.4% YoY) fell over the month and remains lower over the year. By contrast, business credit (-0.1% MoM; 0.6% QoQ; 4.0% YoY) also fell slightly over the month but is up over the year. Housing credit (0.3% MoM; 1.0% QoQ; 4.8% YoY) grew over the year, but at subdued levels relative to their long-run average growth rates.

Focusing on the housing market, quarterly and annual credit growth hit fresh all time (35-year) lows of 0.95% and 4.82% respectively. Monthly housing credit growth (0.33%) was also the third lowest recorded result in the series’ history, and the series is now in a down trend (see below chart).

Finally, a breakdown of owner-occupied credit and investor credit is provided below:

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

Leith van Onselen


  1. “The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates, which registered a small decrease in total credit growth in the month of August, but the third lowest monthly housing credit growth in the series’ 35-year history and the lowest quarterly and annual mortgage growth ever recorded.”

    So as suggested by the post-Keynesian, crack-pot, Steve Keen worshipping, ‘doom & gloomers’ by hard data, debt acceleration or lack thereof is the primary factor driving house prices.

    That quarterly housing credit growth figure is obviously intimately linked to the corresponding downturn in house prices since mid-2010.

    Obviously supply constraints, urban boundaries etc all add to the problem, but credit seems to be the key factor explaining the direction of house prices.

    • The RBA’s figures are not as good a predictor as the ABS housing finance series released two weeks later.

      The credit aggregates are affected by pre-existing owners repaying their loans down more quickly. Hence, you can get a situation where new loans are increasing (which affects housing demand) but aggregate credit growth is flat/falling because those repaying pre-existing loans (which doesn’t affect demand) offsets new credit from buyers taking out new loans.

    • It’s hard for me to fathom an argument against the correlation between credit growth and house prices.

      We all know we buy houses on credit. When you buy a house nobody asks ‘did you get a mortgage’, it is simply assumed. The only logical conclusions I can see for having lower credit growth are:

      less houses being bought, or
      houses being bought at lower prices, or

      Less houses being bought is equivalent to lower demand, which will inevitably lead to lower prices anyway (just maybe with a delay).

      The correlation is very straightforward, I don’t understand how anyone disputes it?

      • i guess you could have different credit growth rates for different levels of mortgages (eg more growth in big loans, less in smaller loans) which may skew purchases to more expensive houses and affect the median that way (although in real terms houses are falling across the board).

        …. and if less houses are being bought, there may also be less demand to sell those houses which may offset the demand dynamic

        … but broadly I agree with you, yet ironically there are markets like NZ in which some parts are booming again (eg Auckland) despite slow credit growth. Mayeb this reflects foreigners who buy with cash or foreign loans???

      • credit growth has been trending down since 2002 but house price strongly up, futhermore september is going to be a strong month for house price, at least +1% probably more, all with a low credit growth.

        obviously credit growth dont matter much and household (and investors) are repaying their debt quicker and quicker as rate go lower.

        • “futhermore september is going to be a strong month for house price, at least +1% probably more”

          Remembering that one!

        • “obviously credit growth dont matter much”

          why is this obvious, dam?

          See JohnsonM’s post above – his/her points seem very sensible to me.

      • The correlation is very straightforward, I don’t understand how anyone disputes it?
        I don’t think anyone does dispute it. Do you know of someone who does dispute it?

  2. The downtrend for all types of housing credit growth seems to have really got going in 2005. And yet house prices still increased so much up until 2010.

    • 2005 through 2007 seems to have maintained the same credit growth levels. You have to remember that 2004 housing credit growth levels were extremely strong price growth levels.

      Decreasing that credit growth level a little means your housing prices are growing slower, not that they immediately stopped growing. The major boom in prices was actually over by 2005 if memory serves me well, but yes prices did still go up after that.

    • The Steve Keen take on credit and housing prices is not ‘the rate of growth of housing credit’ but is however and very importantly ‘the change in the rate of growth of housing credit’.

      This is completely different to the annologies posted above implying the Keen theory is proven failed.

      Prices in aggregate terms cannot be compared to say, RP Data figures as they relate to very different data sets, ie capital cities only and Darwin is treated equally in percentage terms as is Melbourne.

      Deception is easy when you have a willing audience.

  3. Ok. An expectation. The NZ price correction that you chaps are about to follow(a full retracement of the price melting that you have had – in our case 11%) has come to an end. Today’s weekend magazines are heavily weighted with ‘prices’, and not auctions. It was what we saw at the start of our falls 3 years ago, as stagnant stock tried to quietly ease itself out, on price. Auctions are starting to fail, and advertised price competition has restarted.

  4. For those interested in Prof Keen’s debt accelerator idea, see here:


    Key quote:

    “The result for Australia is shown in Figure 1 below, using debt data released by the RBA on Friday: the Mortgage Accelerator is now negative (though not as negative as it has previously been). The correlation coefficient is also higher than I reported in the previous post—0.53 rather than 0.42 (the previous figure was derived from data including a discontinuity in the mortgage data caused by a reclassification of household debt data by the RBA in the early 90s)”

    Key figure:


    • huge population growth, banks that trow money to buyers with pretty much no check or deposits, household and investors who are paying their debts at record pace (“freeing some credit”), lower and lower interest rates, shitty&stupid stock market/equity

      • > banks that trow money to buyers with pretty much no check or deposits

        I would dispute it. I came across many properties that were “sold” and then buyers couldn’t secure credit. Every agent will tell you about cases like that. From my observations migration of Chinese cashed up buyers plays a role in some areas. See my other posting.

    • The most compelling explanation I’ve heard:
      Its now a strange stand-off. On the one side, sellers looking to break even or ‘realise’ their original price growth projections.
      On the other, buyers who aren’t as confident about their employment any more and who don’t want to pay what is generally accepted as unnecessarily high prices.

      Buyers need to get confident again, or sellers need more desperate reasons to sell. There’s also the rumour about banks hiding abnormally high levels of repossessed properties to prevent a crash, as well as giving lenience to underwater lenders to avoid forced sells building up in problem regions.

    • In my neck of the woods the prices are definitely propped up by overseas mainly Chinese buyers. They are over represented at open inspections and auctions. The area that I am talking about stretches from Glen Iris through Mount and Glen Waverley (the focal point of their interest) Wheelers Hill in the South and Blackburn and Vermont in the East.

      We sold our house over 2.5 years ago when people were falling over themselves to buy with the view to downgrade to a townhouse and upgrade the suburb. Rather than jumping straight in we decided to rent but have been watching the market and making an occasional low ball offer when prices started to drop. In three cases we were outbid by Chinese buyers. The most recent one was about a month ago when we made an unconditional offer just below relatively reasonable asking price (we are cash buyers) in the hope of securing the place but the Chinese agent found a buyer in China who made an offer above the asking price. At the end of the day I didn’t regret since we found another place whose Chinese owners had to sell due to their failure to secure permanent residence. They seemed to be under pressure and accepted our low ball unconditional offer. I wanted to wait another year with our purchase but since the rental property that we live in has been put on the market we decided to do it now especially that after price drops last year the move did not cost us anything. I am not sure how many people in a similar situation are out there but every agent that I spoke to was saying that what we did was very unusual so it’s highly unlikely that people like us affect the current market.

      • I rent in one of those areas, looking to move to another of them.

        I haven’t got the cash and would prefer the plague over debt right now. But it sounds like you pulled quite a slick move on the market! I definitely get the impression that without Chinese investment, we’d be seeing a much worse (better? :P) price story.

        • One thing that we noticed is that Chinese buyers are very often happy to live in lower quality houses as long as they are in their preferred areas. Last year there was a house sold at auction near our place in Mt. Waverley and we were thinking about buying it and building something new as long as the price was up to $680K. Similar houses in that area were selling for about $900K at the peak. The place was bought by Chinese for $700K and they happily live there without doing anything to the house. The fact that they are happy to accept properties that from our point of view are not livable allows them to pay more since they are not facing further costs of renovations or building something new.

          • I live in HKG and have also spent quite a bit of time in Japan. One area where (to generalise) I think NE Asians are very different to Aussies is that the home is kept very private. Aussies tend to use property to display status (by showing off the house to friends and incessantly talking about it), whereas NE Asians seem to prefer using prestige cars and designer goods for this purpose. In HKG, for example, there is a definite split between expat and local style housing. The locals are plenty wealthy, but they aim for lower quality accommodation. Sometimes it’s pretty funny going into a ramshackle old apartment block and seeing the carpark chockablock with Ferraris and high-end Porsches. Especially given the state of the HKG roads. But when you think about it, it’s much more savvy to display wealth with a relatively cheap item (that is owned outright) than with an expensive home (that is on loan from the bank). (Not saying that either is particularly bright, but we do live in the real world.)

          • I can’t understand how the Chinese are allowed to buy houses in Australia.

            Productive investment is fine.

            By property speculation?
            Worsening the housing affordability problem?
            Where is the social policy logic in that?

          • might have something to do with Govt wanting to keep the stamp duty gravy train flowing… I am just waiting for the next “incentive” probably the Recently processed boat persons starter home loan….. 180% LVR plus 20k cash in hand for Ikea furnishings

      • Yep – similar feel out in Parramatta.

        Low volumes lots of old stock that didnt sell last year and a few investor properties.

        Not much buyer interest but just enough to move enough for the stalemate to continue.

        Population growth and foreign buyers having an effect.

        A fair bit of construction going on this seems likely to increase with the 1 Oct changes kicking in.

        Time will tell

      • Same for Sydney’s North Shore.

        This one has just been listed.


        The last time it sold was march 2010 for $2.5m. Nice house but the next highest sale price in the street is around $1.75m. I have it on good authority it was bought in cash by a chinese buyer.

        Will be interesting to see what it sells for 2.5 years later.

      • That’s one way to prop up property prices to keep confidence from totally blowing up; quietly open the immigration flood gates.

    • Relatively more people are going for relatively less properties in cheaper (than they used to go for) price brackets – the effect is to push up the prices and relative demand in a few key price brackets, despite a relatively weak sales numbers and total $$$.

      ie. less stuff is trying to go through the same pipe, but the pipe has shrunk more –> relative increase in velocity!


      (Like my analogy? ;))

  5. Im not seeing any signs of a major botton in housing yet. But i think we just saw a major top in SQM’s credibility this week….

    • I was thinking the same. Either way, they’ve nailed their colours to the mast and this is to be applauded. Better than the CYA fence-sitting we’re seeing from the RBA on the topic.

    • Come on, Christoper’s probably only trying to put food on the table at home. At $39.95 for his Boom and Bust report, I wouldn’t imagine there would be many takers if he said prices were going to trend downwards.

      But having a look at the table of contents of the report, I’m not sure if it is as bullish as everyone believes.

    • Dunno…they might be right for some 6-12 months, i wonder, especially as IRs come down.

      The worry is what demand will be left when the IR “waves” have subsided?

      Could be a formidable demand gap, even greater than what we went through in 2011 until a few months ago.

      My 2c

  6. The idea that foreign migration will be a politically viable option long term is hopeful at best.

    Like the boats a popular poll driven back flip will crash this source of demand.

    It is not appropriate that foreign buyers (if visas) should crowd out our children and grand children from their own home market.

  7. Hi Tonydd,

    Phillip Soos has completely debunked the concept that the quantum of Asian investment in Aussie property is enough to crowd out home-grown investors / owner-occupiers; except for a probably a few favoured suburbs as outlined by other commentators above (Sydney, Melbourne) particularly. See here:


    Key quote based on stats from the Foreign Investment Review Board:

    “In financial year 2010-11, the FIRB considered a total of 10,865 applications, covering all industry sectors (agriculture, forestry and fishing; finance and insurance; manufacturing, mineral exploration and development; resource processing; services; tourism; and real estate). 4,606 (42%) were approved unconditionally, 5,687 (52%) approved with conditions, with the rest rejected, withdrawn or exempt.

    The real estate sector was the primary target of investment, with 9,771 (96%) of all applications. While clearly dominating the number of applications, real estate investment comprised only $42 (23%) out of $177 billion of investment across all sectors. This is due to the relatively small nature of investment in real estate, compared to the larger scale of business investment. For instance, mineral exploration & development garnered the most investment at $55 billion, albeit with a tiny number of applications at 222 (2%). Next was the service sector at $48 billion with 117 (1%) applications, followed by the real estate sector.

    The overwhelming majority of real estate applications were for the residential sector rather than commercial sector, at 9,556 (98%) and 215 (2%), respectively. While the number of applications is overwhelmingly lopsided, both residential and commercial sectors received the same amount of investment at $21 billion. Within the residential sector, 3,885 (41%) applications were for existing properties and the rest for purposes of property development at 5,671 (59%).”

    So, what is already clear is that despite the total number of applications, real estate only comprises $42 billion out of the total $177 billion invested in Australia (23%). Further, taking out the commercial investment, you are only left with $21 billion invested in residential property and the majority of this money is for property development (59%).

    Therefore it is already clear that the chances of you being outbid by an foreign Asian investor for a pre-existing home in this country is very low when you consider the total size of the property market investment on an annual basis.

    My conclusion is that foreign investors are also used as a convenient political tool by those with Hansonite tendencies in various parliaments around the nation. However, these factors are more a reflection on the sorry state of a property market whimpering in its death throes; the mainstream newspapers who survive on real estate advertising revenue; and low brow political tactics rather than a reflection of reality.

    • I’m glad he’s done the figures but I’m not so sure about the conclusion.

      $42 billion is a lot of money. And it doesn’t include backdoor investment that never gets reviewed by the FIRB.

      If you assume $1 million properties (generous) that’s 42,000 homes purchased by foreign investors. That’s a hell of a lot.

      Ultimately I agree with the conclusion but for a different reason. Foreign investment does make a difference on the way in. And it will make a difference on the way out too. As prices grind downward and it becomes recognised that the AUD is overvalued, capital will flee Australia. Its never one way forever. Not to mention that foreign investors are not exactly swimming in cash these days. There’s a slow down in China, and debt problems in Europe, the US and Japan.

      • “Foreign investment does make a difference on the way in. And it will make a difference on the way out too.”

        Exactly. It will provide positive feedback which will act like an amplifyer.

    • Thanks Bobby

      I meant crowding out in the economic sense not literally, and I still think 10000 residences purchased as in 11 -12 is enough extra cash 42 billion to have an impact on affordability.

      So while I agree with much of what you have written I am not as yet totally converted to your views.

      I am pro asian integration including migration however when the same is used as an economic tool and with annexures that were never intended by the law writers such as having and investing x dollars to help ‘qualify’ for a visa is immoral.


      • Whoops I misread the numbers. But yeah, 10,000 is still quite a few and we still don’t know how many back-door foreign investors are in the market.

  8. “So what the heck is propping up house prices?”

    Even RP says all capital cites are down year on year. Bris, Adel more than 4%, Melb almost 4%.. Syd 1.11% – but that only covers the metro capitals.

    Some of the biggest vendor discounting is happening in fridge metro regions like the Central Coast, Gold Coast and further out in holiday home regions… So -40% corrections are being recorded, they’re just off the radar screen far enough so the spruiker media can ignore them and pump up the volume about the BS spring buying season (that according to the credit growth.. clearly isn’t actually happening).

    • I thought Gold Coast was a prime target of “cashed up Chinese buying up properties”. What happened to them? Or, more likely, there wasn’t any foreign money pouring in in the first place!