Biggest lift in housing credit growth in 3 years

Private sector credit; Building approvals

What happened? Private sector credit (effectively outstanding loans) rose by 0.7 per cent in July to be up 4.0 per cent on a year ago – the strongest annual growth rate in over 2 years. Housing credit lifted 0.6 per cent in July to be up 5.8 per cent when compared to a year ago – the strongest annual pace in 3 years. Owner-occupier housing credit jumped 0.9 per cent – the equal biggest gain in 5½ years – to be up 7.7 per cent on a year ago – the strongest annual growth rate in 3 years. Investor housing credit rose by 0.3 per cent to be 2.3 per cent higher on a year ago – the strongest annual rate in 3 years.

Implications: A report released today from the National Housing Finance and Investment Corp (NHFIC) found that developer contributions to pay for “social infrastructure” around new housing developments in NSW were the highest in the country, ranging between $25,000 and $85,000 per dwelling. In Victoria, they were between $37,000 and $77,000, while in Queensland they varied from $29,000 and $42,000. Developer fees have pushed up the cost of homes, reducing affordability and new housing supply, while contributing to a lift in home prices.

Other economic data: Council approvals to build new homes fell by 8.6 per cent in July – the fourth successive monthly decline. And the value of approvals for new building fell by 7.6 per with alterations & additions up by just 0.1 per cent. The number of building approvals fell by 17.9 per cent in South Australia – the most in two years – with detached house approvals down 26.2 per cent in Greater Adelaide.

Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending. The building approvals data has implications for banks, retailers, developers, building and building material companies.

What does it mean?

• Extended lockdowns in NSW, Victoria and the ACT will likely slow the pace of home price growth in August when compared to the rapid gains in the first half of 2021. The CoreLogic daily home value index suggests that national home prices are likely to have grown by around 1.5 per cent in August, with prices in “Covid-free” smaller capital cities Brisbane (up 2.0 per cent) and Adelaide (up 1.8 per cent) leading gains. But Sydney (up 1.7 per cent) and Melbourne (up 1.1 per cent) home prices are both expected to lag.

• Of course, sales and listing volumes have declined during the latest prolonged lockdowns in Sydney, Melbourne and Canberra. With vendors cautious due to lockdown uncertainties, the traditional Spring selling season has got off to a slow start with data from SQM Research showing that upcoming auction listings in Sydney are down 29 per cent for September compared with a year ago and 10.5 per cent lower than pre-pandemic levels in September 2019. And Melbourne listings have dropped 36.2 per cent over the two-year period.

• But it’s not all bad news with CoreLogic reporting that new listings added to Sydney market have risen by 5.8 per cent so far in August when compared to the previous four-week period. Transaction activity is expected to pick up once government restrictions are eventually eased, supported by pent-up home buyer demand, excess savings, government payments and low mortgage rates.

• So what does this mean for home loan demand? The tightening of restrictions in NSW, Victoria, the ACT and several other regions doesn’t appear to have had a material impact on July’s housing credit data, given lags between housing market activity, financial approvals, and aggregate credit growth. For the second successive month, owner-occupier home buyers again propelled a surge in housing credit. In fact, housing credit lifted 0.6 per cent in July to be up 5.8 per cent when compared to a year ago – the strongest annual pace in 3 years. Owner-occupier housing credit jumped 0.9 per cent – the equal biggest gain in 5½ years – to be up 7.7 per cent on a year ago – the strongest annual growth rate in 3 years. Investor housing credit rose by 0.3 per cent to be 2.3 per cent higher on a year ago – the strongest annual rate in 3 years.

• The figures are consistent with elevated housing finance approvals by banks. Commonwealth Bank (CBA) lending data shows that the pace of new lending for housing remained elevated in July, but it is plateauing at high levels. CBA Group economists expect the value of home loans to be broadly flat for July when the Bureau of Statistics (ABS) issues the data on Thursday. That said, the prolonged shutdowns are likely to show up in a likely slowdown in activity in the September quarter.

• While lockdowns are expected to temporarily weigh on the property market, the pick-up in housing credit growth and home lending bears close watching. Reserve Bank policymakers have made it clear they won’t hike interest rates to cool soaring home prices. While the Board continues to monitor lending standards, macro-prudential policy is likely to be the tool of choice again for regulators, should they need to cool the market. But CBA Group economists don’t expect APRA to reintroduce macro‑prudential measures in 2021 because we do not think the stock of housing credit will rise fast enough for the regulator to act.

• Business credit growth jumped in June as firms accessed lines of credit to support cash flows ahead of lockdowns with the Reserve Bank’s Term Funding Facility (TFF) expiring. The lift was also likely driven by end of tax year business investment incentives. Encouragingly, business credit grew by a still-solid growth rate of 1.1 per cent in July.

• According to the ABS, council approvals to build new residential homes fell by 8.6 per cent in July, the fourth successive monthly decline, to be down 25 per cent since the March peak. The fall was driven by an ongoing normalisation in private detached house approvals (-5.8 per cent) off record high levels following the expiry of the Government’s HomeBuilder scheme earlier in the year. Higher-density approvals were down by 14.0 per cent. And the value of approvals for new building fell by 7.6 per with alterations & additions up by just 0.1 per cent. Commercial building dropped 30.5 per cent.

• The impact of the Greater Sydney lockdown was apparent in the July figures with the number of detached house approvals down 7.3 per cent in the month. The decline was less severe in Greater Melbourne (-3.7 per cent), but approvals plunged 26.2 per cent in Greater Adelaide during its July shutdown.

• Building approvals and construction activity data are likely to remain volatile in the September quarter with some delays in council consents likely until the December quarter once there is some clarity about the reopening of the NSW and Victorian economies. Also, labour shortages and rising supply costs for building materials could dampen demand in the near term as some construction companies wait for the temporary, but sharp, increase in prices before committing to more projects.

What do you need to know?

Private sector credit – July

• Private sector credit (effectively outstanding loans) rose by 0.7 per cent in July to be up 4.0 per cent on a year ago – the strongest annual growth rate in over 2 years.

• In July, housing credit lifted 0.6 per cent to be up 5.8 per cent when compared to a year ago – the strongest annual pace in 3 years. Owner-occupier housing credit jumped 0.9 per cent – the equal biggest gain in 5½ years – to be up 7.7 per cent on a year ago – the strongest annual growth rate in 3 years. Investor housing credit rose by 0.3 per cent to be 2.3 per cent higher on a year ago – the strongest annual rate in 3 years.

• Personal credit fell by 1.0 per cent in July – the most in 10 months – to be down 5.9 cent over the year.

• Business credit lifted 1.1 per cent in July to be up 2.4 per cent over the year – the strongest pace in 11 months.

• The M3 money aggregate lifted by 1.0 per cent in the month to be up 7.9 per cent from a year ago. Broad Money rose by 0.9 per cent to be up 7.9 per cent from a year ago.

Building Approvals – July

• Council approvals to build new homes fell by 8.6 per cent in July – the fourth successive monthly decline – but approvals are still 21.5 per cent higher on a year ago at 17,601 units.

• Total house approvals fell by 5.7 per cent to 11,752 units in July but were up 27.3 per cent on a year ago. Private sector house approvals were down 5.8 per cent to 11,671 units, to be up 28.0 per cent on a year ago. Public sector house approvals rose by 8.0 per cent in July to 81 units, to be down 28.3 per cent on a year ago.

• Apartment approvals fell by 14.0 per cent to 5,850 units in July to be up 11.3 per cent on a year ago. Private sector apartment approvals fell 12.3 per cent to 5,679 units to be up 12.4 per cent on a year ago.

• Over the past year, 223,976 homes were approved, a 34-month high.

• The number of dwelling approvals across states in July: NSW (-9.9 per cent); Victoria (-11.0 per cent); Queensland (+9.0 per cent); South Australia (-17.9 per cent); Western Australia (-11.3 per cent); Tasmania (-15.3 per cent).

• The value of all commercial and residential building approvals fell by 15.9 per cent in July. Total residential approvals were down 6.6 per cent with new building 7.6 per cent lower and alterations & additions up by just 0.1 per cent. Commercial building dropped 30.5 per cent.

Published by Ryan Felsman, Senior Economist, CommSec