The link between house prices and consumption is broken

Wednesday 11 March 2020

The latest credit aggregates data from the RBA revealed that both personal and mortgage credit growth has collapsed, with personal loan growth declining by 5.0% in the year to January 2020 and mortgage growth tracking at just 3.1% – just above lowest level in recorded history:

The decline in mortgage credit growth comes at the same time as Australian dwelling values are rocketing, which is somewhat contradictory:

This disconnect has arisen because mortgage credit growth measures two distinct things: 1) the addition to the mortgage stock from new mortgages taken out by borrowers (increases the stock of debt outstanding); and 2) the repayment of mortgage debt by existing borrowers (reduces mortgage debt).

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About the author

Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.