Housing finance dives deeper into the abyss

By Leith van Onselen

The Reserve Bank of Australia (RBA) released its private sector credit aggregates data for the month of November 2018:

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

Personal credit growth (-0.3% MoM; -0.6% QoQ; -1.7% YoY) is still in the gutter, whereas business credit growth (0.5% MoM; 1.7% QoQ; 4.4% YoY) and housing credit growth (0.3% MoM; 0.9% QoQ; 4.9% YoY) are stronger.

A long-run breakdown of owner-occupied credit (0.39% MoM; 1.27% QoQ; 6.82% YoY) and investor credit (0.00% MoM; 0.16% QoQ; 1.12% YoY) is provided below:

Annual investor credit growth has tanked to an all-time low, whereas owner-occupied credit is also weakening. Combined, overall housing credit growth is trending down fast:

The below chart shows that quarterly housing credit growth gapped down further in November:

Driven by a combined fall in both owner-occupied and investor lending:

The annual dollar value of housing credit issued also fell and remains down to $27 billion (-24%) since peaking in August 2017:

Finally, the share of loans going to housing was 62.10% in November – fractionally below all-time highs. By contrast, the share of total loans to businesses was just 32.75% – fractionally above all-time lows:

Overall, housing credit growth continues to weaken, driven by a desertion of both owner-occupiers and investors, which is reflected by the fall in house prices.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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  1. Q – if transaction volumes are falling nationally, and falling hard in NSW & VIC (read Sydney and Melbourne), at the same time as prices fall, why is this not reflected in a negative credit growth?

    • Yeah someone trued to explain this a while back. It could be because the share of new purchases of home that are now funded by debt is more than before and house prices are still higher than anyone can afford (hence still falling prices).
      I.e. A house in Epping 2121 was 500k in 2000 and is still about 1.2mil now. Even though prices have fallen from 1.5m to 1.2m, In 2000 your loan would have been 400k on 20% deposit, now it is still 960k. That is still a “growth in credit” of 560k. Now, it is true that someone who bought last year at the 1.5m mark would have had to take out credit of 1.2m on 20% deposit so this should be reflected in the rate of credit growth being lowered but that’s 1.2m vs 960k vs 400k… There will be an inflection point I think after enough price falls… Maybe we are not there yet.
      Also people who have sold till now have done it to upgrade and take on bigger loans adding to credit growth, that behaviour still needs time to die yet I think.
      You’re right , it looks funny and has been. I would also thinking people paying off p&i now should make that decline even more.
      Anyhow, I am told its the rate of credit growth and not the absolute value if credit growth you have to look for and the graph pointing in the bottom right way. The trend not the number that is important. At these high levels of debt, its the sucking sound of contraction that will cause trouble.

    • You need to consider that with population growth running at 400K a year, that is creating demand for new housing, which is generally financed by new debt. 180,000 new houses at $500K each is about $90B each year. At zero pop growth you’d expect price falls to directly feed into credit growth.

    • C.M.BurnsMEMBER

      another factor behind the pullback in # of credit card accounts on issue is the loan application process. All types of other credit are now being checked and the credit limits actually factored into loan repayment and serviceability calculations. Note that this was always “supposed” to happen but never did.

      so anyone applying for a loan will be coached to close all but their primary credit card

    • And a surprising number of people l know treat it as though it is entitlement, not debt. Really scary.