From CBA chief economist Gareth Aird:
- The value of all housing‑related lending (excl. refinancing) rose by a large 5.1% in July.
- The value of housing loans to owner‑occupiers (excl. refinancing) was up by 5.3% while the value of loans to investors (excl. refinancing) rose by 4.7%.
- The lift in the flow of credit for housing is consistent with other leading indicators of dwelling prices, which have all firmed.
- Lending to businesses was down in July, but has trended higher over the past year.
The value of all housing‑related lending spiked in July. We expected to see a big lift in total lending excluding refinancing (CBA (f) +5.5%), but the market consensus was centred on a more modest lift of 1% (value of loans to owner‑occupiers) and 1.5% (value of loans to investors).
RBA rate cuts coupled with regulatory changes and the reinstatement of the Coalition Government and therefore policy certainty around negative gearing and capital gains tax have clearly had an impact on the demand for credit. The flow of credit has a strong leading relationship with property prices. It’s no surprise that dwelling prices have lifted in line with firmer credit growth. Other indicators of the housing market, such as auction clearance rates and CBA’s HSI home buying measure, have also turned higher (see here).
The lift in housing lending was broad‑based between owner‑occupiers, investors and first home buyers. And solid rises were posted in all States.
There’s an old adage that one month’s numbers do not make a trend. But we think that the July figures mark a turning point in the housing‑related lending data. We expect lower mortgage rates to increase the demand for credit from here which will in turn support dwelling prices and turn a negative wealth effect into a positive one. Indeed that is the obvious channel how lowering interest rates stimulates lending and consumption.
RBA Governor Philip Lowe recently stated at the Jackson Hole Symposium that, “monetary policy cannot deliver medium‑term growth ..……. we risk just pushing up asset prices”. That’s exactly right. But right now it appears in Australia that the intention is indeed to give a short‑term positive boost to the economy from a pickup in house prices and credit growth from lowering borrowing costs. Clearly the linkages from mortgage rates to credit to house prices are working. But we are yet to see a lift in the consumer spending part of the equation. We expect to see that in coming months, aided also by tax rebates. In the longer term, however, the Australian economy still needs more productivity enhancing measures to boost growth. Personal income tax cuts would also help.
To the other detail, personal lending fell by 1.6% over the month but has stabilised in trend terms over the past four months. We may see a gradual lift over coming months due to a positive wealth effect. That said, consumer sentiment more generally is subdued which weighs on the overall appetite for non‑housing related debt.
Lending to businesses was down by 1.1% in July, but the monthly figures are incredibly choppy. On a rolling 12‑month basis lending has lifted over the past year, albeit modestly (see chart opposite).
Market implications: Financial markets largely looked through today’s data and there was little reaction. But to us the data is important. If housing‑related lending accelerates over coming months and dwelling prices rise too briskly the RBA may once again talk about financial stability risks. If we find ourselves in that situation the RBA may be more cautious about taking the cash rate lower without some form of additional macro‑prudential measurers. The irony, however, is that APRA has only recently loosened macro‑prudential measures on the serviceability assessments that ADIs perform on residential mortgage applications. The housing data related to lending and prices from here warrants close watching.