Mortgage credit growth has bottomed

ScreenHunter_01 Mar. 17 23.04

By Leith van Onselen

The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates data for the month of March:

Total credit provided to the private sector by financial intermediaries rose by 0.2 per cent over March 2013 after increasing by 0.2 per cent over February. Over the year to March, total credit rose by 3.2 per cent.

Housing credit increased by 0.4 per cent over March following an increase of 0.4 per cent over February. Over the year to March, housing credit rose by 4.4 per cent.

Other personal credit rose by 0.1 per cent over March after increasing by 0.1 per cent over February. Over the year to March, other personal credit decreased by 0.1 per cent.

Business credit was unchanged over March after decreasing by 0.2 per cent over February. Over the year to March, business credit increased by 1.6 per cent.

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

ScreenHunter_09 Apr. 30 12.39

As you can see, personal credit growth (0.1% MoM; 0.2% QoQ; -0.1% YoY) has until recently been deleveraging, whereas business credit growth (0.0% MoM; -0.2% QoQ; 1.6% YoY) and housing credit growth (0.4% MoM; 1.2% QoQ; 4.4% YoY) remains positive in annual terms, but are at subdued levels relative to their long-run average growth rates.

Focusing on the housing market, annual credit growth remained unchanged at its all time (36-year) low of 4.40%. However, as shown by the below chart, housing credit growth looks like it is recovering, albeit off a low base:

ScreenHunter_10 Apr. 30 12.46

Finally, a breakdown of owner-occupied credit (0.4% MoM; 1.1% QoQ; 3.9% YoY) and investor credit (0.4% MoM; 1.4% QoQ; 5.4% YoY) is provided below:

ScreenHunter_11 Apr. 30 12.49

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.

[email protected]


Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. One of the more dangerous pastimes is to sit around the embers of a campfire with a tin full of petrol and try to work out how much to pour on to get the fire going without blowing yourself up.

    When it comes to the RBA they have a cunning plan, surround themselves with plenty of tin plating, tie a small 1/4 cup to a long bamboo stick poke it over the top of the fire, release and see what happens.

    • …the cup tilts over just before it gets to the flames; dribbling a stream of petrol back down the pole towards the RBA, and then the flame hits the 25cc left in the cup. The flame tracks back down the bamboo pole to the 44 gallon drum that the 1/4 cup was decanted from…and BOOM !! “No one saw that happening…” Glenn said, dusting off what is left of his singed eyebrows.”Who’d of thought 0.25% could do so much damage…”

  2. For those who missed it yesterday.

    This is how we feed one generation to another.

    ‘Australia’s problem looking forward is about what replaces mining investment as a driver of economic growth and employment, with manufacturing and services experiencing a strong dollar hollowing out. The current body politic (both sides of politics) and RBA assumes that the best way to stimulate aggregate demand is to stimulate the housing construction sector, as this sector delivers a local employment ‘bang for buck’ while other forms of stimulus are likely to leak overseas.

    The problem with this is that Australian house prices are already amongst the world’s most expensive, a generation of aspirational home owning Australians is effectively priced out of the market, and despite an early 2013 bounce in prices, it appears that first home owners have left the field for older buyers using negative gearing and SMSF’s, as housing starts remain subdued. This suggests that that speculators will have better access to and be more significant beneficiaries of any stimulus intended for housing construction (Credit Suisse estimated 1/3 of mortgages were being serviced on an interest only basis in 4Q2012, with investment property owner numbers, 60% of them babyboomers, reaching 14% of all taxpayers), than either employees in the sector or aspiring home owners not already in the market.

    The alternative is equally gloomy. If the government or RBA allow housing prices to fall many Australians relying on investment properties currently approaching retirement will be in trouble. Australian banks which currently lend 40% to the corporate sector and 60% to mortgages would also become horribly exposed. This is because roughly 20-30% of the funding Australian banks lend is borrowed from global markets and is effectively collateralised with Australian mortgages. If the value of those mortgages decreases then banks will need to provide more collateral, with interest rates rising, and a vicious circle of greater default risks and market instability follows.’

    • Ah! So stimulating the housing sector doesn’t aggravate the problems in the external sector but letting house prices fall will?
      All sorts of irreverent divine imprecations come to mind!!!!!!

      • Sorry chief, the rationale being that rising housing prices will bring external problems in the form of people OS telling Australians they have a problem with them from overseas (ie you are very expensive and I am not going there). Falling prices (on the other hand) will bring the foreigners to us asking for more and poking punters in the chest.

        Feeble I know (and I agree that rising RE has already brought problems – and my closing comms about productivity were half a hat tip to the issue of RE costs), but I thought that if I was to keep things moderately short then keeping the mains themes simple was the way to go.

      • Sorry gunna…didn’t realise it was your own post. I know you are aware of the problems.

        However the argument still holds. Stimulating housing involves stimulating imports no matter how you go about it. It also means limiting, or makingmore expensive, the labour resources for other more productive pursuits.
        Mind you we are determined to have no productive pursuits one form and another.

        Either way there is no way out of this. Our past reckless profligacy at both government and personal level is now going to seriously affect our lives and more particularly the lives of those who have not yet entered adulthood.

        P.S. This idiocy is three generations in process not just one!

    • Gunna – how much more of the former (credit to speculators) can you get before the latter scenario (falling prices and feedback loops) becomes inevitable, in your opinion?

      I see one leading thing leading to another. Continuing to fuel imbalance cannot continue forever.

  3. ceteris paribus

    Interesting article on (today/last night), “Housing Bubble 2.0”, about how Fed reflation has re-ignited runaway housing asset booms in isolated pockets of Californuia.

    The whole macro-economic scene seems out of control there.

    • None of the print and pray’ brigade ever imagined that the downturn would last this long. At some stage they, like Australia yesterday, are going to realise that the gig is up; that time couldn’t heal all, and have to admit it. That’s when the ‘out of control’ stuff stops…and when it does ,just like the Picture of Dorian Gray, there’ll be an horrific catch-up when ‘the picture’ reverts to normal.

      • Sure they did. The bankers got a bailout. Nobody got arrested. Why just the other day, Bernie Madoff’s clients (hedge fund HNW who thought that they were betting with inside information) got about half of their money back with nary a whisper of outrage. This thing is stitched up asshole to nostril.

    • I often wonder where the pain point is for bogan landlords – sorry, savvy negatively geared property investors. Two years? Five years? How long can they keep paying a dividend to their investment before the pain of losing money every year becomes too much?

      • Answer: As long as BS house price stats help NGers believe their “investment” is holding water, the NG strategy is alive.

        If that belief is turned and selling out the “investment” follows, Keen’s vision of a house price collapse materializes. Now, just how important is it to maintain elevated house prices stats? You won’t find an RBA, politician, Bankster or MSM property playa looking for sustained lower property prices.

      • Pain point never happens.

        Most “savvy negatively geared property investors” don’t understand how negative gearing works and can’t caclulate their accumulated losses.

        Hence, when it comes time to sell, even if they make a nominal gain of $50-$100k, they mistakenly think it’s all profit.

      • I too have been exercised by this point, mrd. I have been cheerfully foreseeing the ‘Gearers turn when they realize they are wilfully injuring themselves. I have been visualizing a rush for the exits when they do the arithmetic.

        I now must conclude they do not understand the sums and obscure concepts like ‘opportunity cost’.

        This new understanding is confirmed by more middle-income earners harnessing up for a big loan. If there is to be no end to ‘Gearer self-delusion, then I may spend my lifetime renting and having my lifestyle subsidised by a fool.

        • “If there is to be no end to ‘Gearer self-delusion, then I may spend my lifetime renting and having my lifestyle subsidised by a fool.”

          That’s not a bad thing, is it?

      • Tassie TomMEMBER

        My answer: 7-10 years.

        This is how long one remembers. I’m not talking about remembering your first ice-cream or first car – I’m talking about feelings, perceptions, beliefs, emotions.

        It is the time it takes to forget why you believed you core beliefs were infallible in the first place. It’s when you start to think “this time it’s different”.

        That’s why ecenonomic cycles are about 10 years, why sharemarket bull runs and crashes cycle about every 10 years (7 years to forget that shares are evil, 3 years of “this time it’s different” bull run, CRASH).

        As for property – the start date should be 2007, but then the buggers went up another 20% in 2009. So I’d give the savvy NG property investors another 3 years to start changing their minds.

        Mind you, if hundreds of thousands of tradies find themselves unemployed after their job at one mine has finished and there isn’t another mine to work on, then all bets are off.

  4. James White made a couple of interesting points on Sky this morning about the accounting of Offset Mortgages in the ABS credit numbers. He was suggesting that Offset Savings are not properly counted in the total debt figure. This is a major miss if not, he was suggesting it would mean Aus debt/GDP being 127% instead of 150%.

    He also pointed out the other side of this issue which is if a person has say 1mil loan facility and has 300k in offset, if they now increase the loan facility to buy a new place, the % increase in their personal gearing is much greater than the aggregate would suggest.

    Any chance of analysis on this and also the % of mortgages which are offset?

    • To clarify, the part which is missed is the offset savings. So if I have a mil loan but have saved 300k, the debt figure counted is 1mil not 700k. This is a major error.

      I wonder how offsets are treated in the savings rate calculations also??

      • Not sure its a major error? When things go backside up your savings/investment disappear but the debts always remain. It’s a point made by Keen often enough.

      • I expect that you and James White are correct Davel. Mortgage offsets are technically just savings accounts where the interest credits are offset against the debit interest, usually at the same rate of interest. Therefore the debt is counted at the full amount and not the net debt. The funds in the account will be included in the savings stats.

        There are other question marks as well, like how is an undrawn Line of Credit treated? Often the maxim is to show the potential debt, which is the full limit. And the same applies to loans that are in advance, the total loan available may be captured and not the net debt.

        It would be nice to find that out as billions are available on LOC’s and undrawn loans. It would make a difference.

  5. “Mortgage credit growth has bottomed”

    Maybe we’ve just reached the cycle peak!

    Considering that nominal per capita incomes are falling, investment is falling/ rolling over, labor demand is falling, nominal aggregate national income is probably falling, (and real GDP is likely to be falling as well) profits are falling AND household savings are still growing while the budget slides into cyclical deficit…we are now probably in the first few weeks or months of the first recession since 1990.

    How likely is it that demand for credit will continue to grow if the economy contracts?

    • ‘we are now probably in the first few weeks or months of the first recession since 1990.’

      Good call. I think we are so close there is a chill coming down the national spine. Sort of like that first chill which becomes an uber feeling of lethargy which becomes the flu.

  6. I was wondering if someone could help me with the maths here …

    The unit next to mine was sold for $547K to a grey haired lady in her late 50s.
    It is now advertised for rent at $450pw.

    What would be the expected return ?

    • Quick basic math (rent x 52 / price) it comes to 4.27%. Could get a better return on that in the bank if she paid cash.

      If she mortgaged up she’s still losing money to the tune of 0.8% p.a compared with the best available mortgage rate.

      I am truly astounded at the stupidity of the average property investor in 2013. There are always bargains to be had, postively geared investments can be found if one is patient and knows the market very well even in a market like the one we are currently experiencing.

      However its not 1996 anymore just buying any house and renting it out is no longer a good investment and just because it was nearly 20 years doesn’t mean it is now.

      • boyracerMEMBER

        The real return (before tax & inflation) would be lucky to be 3% after allowing for agents/body corporate fees, council rates, R&M etc etc ad nauseum.

        Boggles the mind anybody would willingly make such a purchase.

      • Tassie TomMEMBER

        I’d like to add that around 2% of the capital is expended per year (property manager fees, council rates, land tax, maintenance – it racks up pretty fast).

        That brings the “EBITDA” down to 2.27%.

        Say itt was 50% capitalized (although probably 20%) paying 6% bank interest, and she could be earning 4.5% in the bank, then she needs capital growth of at least 3.5%pa tobeat cash.

        And she needs to beat cash by a total of 10%, because that’s how much it costs to buy, then sell a house (agent fees, loan fees, legals, stamp duty)

        Not a big number, but bigger than inflation, and how much more in real terms can houses possibly cost?

  7. Fabian AlderseyMEMBER

    There appears to be a seasonal drop-off in April-May-June each year. Let’s see what the next three months bring.