The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of September 2019:
A chart showing the long-run breakdown in the components is provided below:
Personal credit growth (-0.7% MoM; -1.4% QoQ; -4.4% YoY) has plunged, whereas business credit growth (0.4% MoM; 0.9% QoQ; 3.3% YoY) and housing credit growth (0.2% MoM; 0.7% QoQ; 3.1% YoY) are at least growing, albeit slowly.
A long-run breakdown of owner-occupied credit (0.44% MoM; 1.32% QoQ; 4.76% YoY) and investor credit (-0.12% MoM; -0.27% QoQ; -0.14% YoY) is provided below:
Overall annual mortgage growth has tanked to an all-time low, with especially sharp falls in investor credit growth, which has turned negative for the first time:
However, the below chart shows that quarterly mortgage growth posted a modest rebound in September:
This was driven by owner-occupiers, whereas investor mortgage growth has turned sharply negative:
So overall, mortgage credit growth remains disconnected from the boom in house prices. More on this tomorrow.
Leith van Onselen
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I read recently that after the most recent rate cut only 6.9% of borrowers had contacted their bank asking for their repayments to be lowered in line with the drop in interest rates. The increasing paydown of principal on mortgages is a big drag on total housing credit and the economy.
This shines a light on why the existing monetary system is ultimately doomed:
For it to survive credit needs to grow in perpetuity and for credit to grow in perpetuity so does the population (of eligible borrowers). With the bulk of existing borrowers saturated, the newbies, on their own, are not sufficient to keep credit growth strong. When credit growth falters it falls on the central bank to pick up the slack (via QE or some such mechanism). The money supply has to grow and grow or … deflation … and that means Kaboom! Game over. Financial system implodes as collateral values underpinning bank balance sheets get smoked.
You’re so seductive when you talk dirty. Tell me more!.
You’re looking at a ponzi scheme — but I think you knew that 😉
https://www.afr.com/companies/financial-services/anz-s-local-profits-slide-as-customers-pay-back-loans-faster-20191031-p53660
Yup, precisely why QE is being talked up. MMT as well. Base money is going to grow by a lot in the coming years.
House prices back to an all time high by February I’m thinking. Owner occupiers have this thing sorted for now, and when they start to falter investor reinforcements will arrive.
Aside from low housing turnover, most of the turnover is in the established market so many newly purchased properties would have had an existing mortgage over them which is paid down upon sale. New apartment and land/house packages usually result in big new mortgages which add to the credit pile.
even if only existing homes get sold and even if all had large mortgages before for price to rise credit needs to grow
The amount of new housing credit is what’s important for price rises. Technically overall housing credit aggregate could be falling while prices were still rising. We are close to that point at the moment. About $17B of new credit is created each month at the moment (excl refinancing) but total housing credit is growing at $4B a month. So something like $13B of exisitng credit is being paid down each month.
Technically almost everything is possible but in reality not so.
True that It’s an interesting situation at the moment with low turnover and sharp price rises.
Probably the worst outcome given that house prices are being pumped while the overall economy is not really benefiting.
whether that’s the best or the worst depends on perspective I guess
I think it’s bad, to me it just means it’s going pedal to the metal into the next big slow down.
This happens all the time in the share market. But it is a sign of weakness.
Shrinking investor credit at a time of record apartment completions does not bode well for the apartment sector.
There is no boom in house prices. Seriously. WTF ?
It has only JUST as of last week sopped being negative.
I don’t understand. How can prices keep going up if credit is going down.
Chinese imported cash / questionable imported goods
Chinese money? Maybe.
A simpler explanation is sideways growth, reallocation of existing credit and credit consolidation which games the statistics as fewer, more expensive properties are exchanged.
Smells like a ponzi death, but, who really knows. I’m sure there’s life in the debt ponzi. They’ve just lowered the rates and primed the FHB grants.
In my opinion once the FHB grants start working (if they do) it will bring back capital gains and the investors will pile back in.
Throwing money at the poorest potential debt slaves so they can inject another house-sized mountain of debt into the economy is the new economy’s version of increasing newstart.
Housing credit growth has been dropping for 15 years according to those charts……
Which makes sense given the buildup in private debt and the long pay down of a mortgage whereby very little of the principal is paid off in the early years.
You have to also look at volumes.
100 people pay $10.
100 people pay $12 -> “Prices have risen by 20%!!”
99 people drop dead.
1 person pays $18 -> “Prices have risen by 50%!!!”
Take “prices” with a grain of salt. If there’s no volume (“a thin book”) then price movement doesn’t mean a damn thing.
There will always be a few cashed up buyers with money to burn. The more quiet the market is, the more of an effect on “prices” (an average) their transactions cause.