Record mortgage size and record exports to China

Lending indicators; International trade

What happened? The value of new loan commitments for housing rose by 0.2 per cent in July to $32.1 billion. Owner-occupier loans fell by 0.4 per cent to $22.8 billion. But investor loans were up by 1.8 per cent to a 6-year high of $9.4 billion. Renovation loans rose by 6.8 per cent to a record (19-year high) $520 million. The average Aussie mortgage hit an all-time high of $593,600 in July.

Implications: Policymakers are focused on lending standards and financial stability issues rather than home price movements. While the pace of home price gains has eased from the peaks in March, the average mortgage size hit record highs in July. Commonwealth Bank Group economists don’t expect any macro‑prudential policies to be reintroduced in the near-term. But excessive household mortgage debt, a lift in investor activity and a re-acceleration in home prices after lockdowns could yet see regulators intervene in the housing market in 2022.

Other data: The trade surplus increased from $11.1 billion in June to a record $12.1 billion in July. Australia has posted 43 successive monthly trade surpluses. The rolling annual surplus hit a record high $95.6 billion in the year to July. Exports to China rose by 2.9 per cent in July to a record $19.4 billion.

Lending finance data has implications for banks, retailers, developers, building and building material companies. The trade data is instructive on income flows in the economy and consumer and business activity and has implications for the currency.

What does it mean?

• Commonwealth Bank (CBA Group) data showed home lending plateauing at near-record levels in July and today the Bureau of Statistics (ABS) released figures re-affirming this result. The value of new loan commitments for housing lifted by a modest 0.2 per cent in July to $32.1 billion.

• In fact, demand for new owner-occupier home loans remained resilient, despite extending lockdowns in Greater Sydney and Greater Melbourne, with the value of loan commitments up 6.6 per cent in NSW and up 0.4 per cent in Victoria in July. Home loans surged 13.2 per cent in the Northern Territory, but fell in other states and territories with South Australia’s lockdown weighing the most (down 8.2 per cent).

• But affordability constraints due to the rapid increase in home prices weighed on home loan demand from first home buyers in July. The number of new loan commitments to owner-occupier first home buyers fell by 6.8 per cent with the value of lending commitments down 7.6 per cent. Investor demand continues to supplant first home buyers with the rapid rise in the value of investor loans continuing in July to be up by 1.8 per cent to a 6-year high of $9.4 billion.

• But the expiration of the HomeBuilder scheme in late March again weighed on the value of loans for new residential construction, down by 4.7 per cent in July, with the number of commitments 8.3 per cent lower. That said, renovation loans rose by 6.8 per cent to a record (19-year high) $520 million.

• CBA data suggests that average home loan sizes have surged as home prices have increased during the pandemic. And the official ABS data today shows that the national average mortgage size hit an all-time high of $593,600 in July. New lending is a good leading indicator of home prices. Having peaked in March, we expect the monthly pace of dwelling prices to slow, as evidenced by the easing in both building and housing finance approvals off record levels in recent months.

• Policymakers are focused on lending standards and financial stability issues rather than home price movements. While the pace of home price gains has eased from the peaks in March, the average mortgage size hit record highs in July. Commonwealth Bank Group economists don’t expect any macro‑prudential policies to be reintroduced in the near-term. But excessive household mortgage debt, a lift in investor activity and a re-acceleration in home prices after lockdowns could yet see regulators intervene in the housing market in 2022.

• Australia’s trade account has been in surplus for 43 consecutive months, since start of 2018. The annual surplus has swelled from $23 billion at the end of 2018 to a record high of almost $96 billion in July 2021 – with rising commodity prices a key driver of the growing surplus. The trade surplus hit a fresh record monthly high of $12.1 billion in July with export earnings up 4.8 per cent or $2.1 billion on higher volumes and prices with resources exports 7.5 per cent higher.

• In July, Australia shipped $17.1 billion worth of iron ore – the second highest ever. And the value of LNG exports soared by 39.7 per cent to a 16-month high of $4.3 billion with coal export revenues 10.3 per cent higher – also at 16-month highs of $4.7 billion.

• Exports to China rose by 2.9 per cent in July to a record $19.4 billion, lifting annual exports to an all-time high of $173.9 billion, up 17.7 per cent on a year ago. Rural exports lifted 5.7 per cent, driven by improved seasonal conditions for grains. The strong performance of Australia’s trade sector is boosting the government’s fiscal position at a time when much-needed support to the hard-hit domestic economy is being increased. But the decline in iron ore prices could dampen income receipts later this year.

• August purchasing manager surveys show the Delta Covid-19 variant outbreak impact on the services and manufacturing sectors in China. The official services and private sector Caixin gauges showed activity contracting for the first time in around 18 months. The weakness in consumer spending, production and investment could prompt the government and central bank to add more policy support.

• The slowdown in China is also partly attributable to regulatory tightening, with recent crackdowns ranging from President Xi Jinping’s “common prosperity” social agenda to reaching carbon neutrality by 2060. Already, an enthusiastic push at the local government level to reduce capacity in the steel industry (one of China’s top emitters), has seen production plunge to around 15-month lows.

What do you need to know?

Lending commitments – July

• The value of new loan commitments for housing rose by 0.2 per cent in July to $32.1 billion.

• Owner-occupier loans fell by 0.4 per cent to $22.8 billion.

• Investor loans were up by 1.8 per cent to a 6-year high of $9.4 billion.

• Renovation loans rose by 6.8 per cent to a record $520 million.

• Borrower refinancing of housing loan commitments between lenders rose by 6.0 per cent to a record $17.2 billion.

• The number of new loan commitments to owner-occupier first home buyers fell by 6.8 per cent, but is still 20.4 per cent higher than a year ago.

• By value, first home buyer loan commitments accounted for 25.6 per cent of all owner-occupier commitments in original terms (excluding refinancing).

• The average mortgage hit a record high of $593,600 in July.

• Personal fixed loans rose by 14.2 per cent in July to be up by 26.4 per cent on the year.

• Business construction loans surged 56.0 per cent in July and loans for property purchase were up 5.5 per cent.

International trade – July

• The trade surplus increased from $11.1 billion in June to a record $12.1 billion in July. Australia has posted 43 successive monthly trade surpluses. The rolling annual surplus rose from $87.7 billion in the year to June to a record $95.6 billion in the year to July.

• Exports of goods and services rose by 4.8 per cent (exports of goods lifted by 6.4 per cent with services down 7.8 per cent). Rural exports climbed 5.7 per cent and exports of non-rural goods rose 7.1 per cent. Gold exports fell 2.8 per cent.

• Imports of goods and services rose by 3.3 per cent (goods were up 4.2 per cent and services were down 2.0 per cent). Consumer imports dipped 3.4 per cent; capital goods imports fell 0.6 per cent and intermediate goods imports jumped by 15.4 per cent.

• Exports to China rose by 2.9 per cent to a record $19.4 billion in July and imports from China lifted 5.3 per cent to $7.2 billion. Australia’s annual exports to China rose from $165.7 billion in June to a record $173.9 billion in July. Exports to China were up 17.7 per cent on a year ago.

• Australia’s annual imports from China fell from $87.1 billion in June to $86.6 billion in July. Annual imports were up 5.8 per cent on a year ago.

• Australia’s rolling annual trade surplus with China climbed from $78.7 billion in June to a record $87.3 billion in July.

Published by Ryan Felsman, Senior Economist, CommSec