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Housing to stabilise; Credit card debt slides
Private sector credit; Building approvals

Lending: Private sector credit (effectively outstanding loans) rose by 0.2 per cent in July to be up 3.1 per cent over the year.

Credit Cards: According to APRA, loans by deposit taking institutions to households via credit cards fell from $39.2 billion to a near 9-year low of $38.6 billion in July. Credit card lending is down by a record 5.0 per cent over the year (biggest fall in 14 years).

Building approvals: Council approvals to build new homes fell by 9.7 per cent in July to 12,944 units – the weakest level in 6½ years.

Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending. Credit card data is important for the retail and financial sectors. The approvals data has implications for banks, retailers, developers, building and building material companies.

What does it all mean?

• Australia’s housing market is stabilising. Home prices are expected to have increased by around 1.5 per cent in Sydney and Melbourne in August when the final data is released by CoreLogic on Monday. Property sentiment has improved. Better sentiment is evidenced by a jump in auction clearance rates to 2-year highs – pointing to a lift in demand on the back of lower mortgage rates. And there is more policy certainty, together with an easing in lending criteria from the bank regulator. That said, listings, turnover and volumes remain low with the Spring selling season a key catalyst for the outlook for the market.

• While housing market conditions are improving, the broader residential property market remains challenging for home builders – especially the apartment markets in Sydney and Melbourne – which have seen double-digit annual declines in council consents. The value of building approvals on an annual rolling basis is still above the decade average, but the number of new homes approved to be built has fallen to the lowest level since January 2013. The continued slowdown in dwelling investment will continue to act as a drag on broader economic activity and hiring intentions for tradies and construction workers continue to weaken. And concerns about building defects could crimp investor demand for new apartments in Sydney and Melbourne, despite an improvement in lending conditions.

• Solid population growth, location appeal of apartments near amenities and transport hubs, lower borrowing costs, improved access to credit for housing borrowers and rising home prices should help eventually stabilise building approvals. Approvals should level-out and modestly lift next year as property developers continue to acquire sites.

What do the figures show?

Private sector credit & APRA data (July)

• Private sector credit (effectively outstanding loans) rose by 0.2 per cent in July after 0.1 per cent growth in June.

• Annual credit growth fell from 3.3 per cent in June to an 8-year low of 3.1 per cent in July.

• Housing credit grew by 0.3 per cent in July. And the annual growth fell from 3.5 per cent to 3.3 per cent – the slowest growth rate on record.

• Owner occupier housing credit rose by 0.5 per cent in July to stand 4.9 per cent higher over the year – equalling the weakest annual growth rate in the past five years.

• Investor housing finance fell in July with annual growth the slowest on record at 0.3 per cent.

• Personal credit fell by 0.4 per cent in July after declining by 0.3 per cent in June. Lending fell by 3.7 per cent over the year – the biggest annual decline in almost a decade.

• Business credit rose by 0.2 per cent in July after a flat result in June. The annual growth rate fell from 4.1 per cent to an 11-month low of 3.9 per cent.

• The M3 money aggregate rose 0.4 per cent in July (strongest growth in four months) and Broad Money also lifted by 0.4 per cent. Annual growth of the M3 money aggregate rose from 3.9 per cent to 4.1 per cent with Broad Money annual growth rate up from 4.0 per cent to 4.2 per cent.

• Loans and advances by banks grew by 4.0 per cent in the year to July, up from 3.4 per cent in the year to June (the slowest growth rate in 27 years).

• Deposits at deposit-taking institutions rose by 1.2 per cent in July.

• According to APRA, loans by deposit taking institutions to households via credit cards fell from $39.2 billion to a near 9-year low of $38.6 billion in July. Credit card lending is down by a record 5.0 per cent over the year (biggest fall in 14 years).

Building Approvals

• Council approvals to build new homes fell by 9.7 per cent in July to 12,944 units – the weakest level in 6½ years. Approvals are down by 28.5 per cent over the year.

• House approvals fell by 3.1 per cent in July and apartment approvals fell by 19.6 per cent.

• In trend terms, overall approvals fell by 3.2 per cent in July, the 20th straight fall.

• Over the past year 182,321 new homes were approved (decade average 195,365) – the lowest number of new approvals in 5½ years.

• Dwelling approvals across states/territories in July: NSW (down 17.5 per cent); Victoria (down 24.3 per cent); Queensland (up 10.9 per cent); South Australia (up 34.8 per cent); Western Australia (up 5.8 per cent); Tasmania (up 21.5 per cent). Trend terms: Northern Territory (flat); ACT (down 22.4 per cent).

• The value of all commercial and residential building approvals fell by 7.3 per cent in July to be down 19.9 per cent on the year. Residential approvals fell by 5.4 per cent in July; new building fell by 6.2 per cent; alterations & additions rose by 0.4 per cent. Commercial building fell by 9.9 per cent.

• Over the year to July, building approvals totalled $111.9 billion, up 13.6 per cent above the decade average.

What is the importance of the economic data?

• Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

• The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.

What are the implications for interest rates and investors?

• The latest data provides little in terms of fresh direction. Demand for homes has lifted after the election, as shown by home price data. But few are rushing to architects to get new projects off the ground. Both new building and home prices should recover gently over the coming year.

• Private sector credit (effectively outstanding loans) responds with a lag to activity in the economy. New loans are added to the stock of loans and old loans get paid down and paid out over time. But credit growth will lift modestly as owner-occupiers and investors respond to a firmer housing market and as more confident business start investing again following the election.

• The Commonwealth Bank Group expects two further rate cuts in November 2019 and February 2020.

Published by Craig James, Chief Economist, CommSec