Investors driving housing market upswing: Andrew Hanlan

Investors driving housing market upswing: Andrew Hanlan
Investors driving housing market upswing: Andrew Hanlan
GUEST OBSERVER
 
Credit grew by 0.6% in the month of July, following a 0.4% rise in June and an average monthly gain of 0.5% over the first half of the year.
 
Annual credit growth is 6.1% currently, strengthening from 5.1% this time a year ago and up from 3.2% in mid- 2013. Both businesses and households have responded to interest rates declining to fresh historic lows.
 
Investors driving housing market upswing: Andrew Hanlan
The July update included revisions. The RBA advise that: "There have been a number of amendments to the data over the past year due to reclassifications by a financial institution, largely regarding housing lending."

For the month of June the revisions in level terms (and annual growth) are: total credit, +$3bn; owner-occupier credit, –$43bn (–0.4ppts); investor credit, +$30bn (+0.4ppts); personal credit, +$11bn (+0.6ppts); and business credit, +$4bn.
 
Investors driving housing market upswing: Andrew Hanlan
Business credit provided an upside surprise in July, advancing by 0.7%, following a broadly flat June. Annual growth is 4.8%, strengthening from 3.4% a year earlier. It was in the six months to February that business credit enjoyed a strong burst, increasing by 3.0%. From March, this sustained strength has given way to volatility month to month, as is often the case for the business segment, given the lumpy nature of such transactions.

Commercial finance - new lending to businesses - has rebounded in 2015, reversing a sharp fall-off during the second half of 2014. That points to further gains in business credit over coming months.

Housing credit increased by (a soft) 0.6% in July. Annual growth is 7.4%, up from 6.5% in July 2014.
 
Investors driving housing market upswing: Andrew Hanlan
Investors have been a key driver of the current housing market upswing. Annual investor credit growth is 10.8% currently, strengthening from 9.2% this time a year ago.

In the month of July, it was notable that investor credit softened, with a more modest gain of 0.6%, albeit that comes on the heels of an above trend 1.0% lift in June.

The RBA reduced rates in February and May 2015, lowering the cash rate to 2.00% from 2.50%. This will act to support housing finance and housing credit, near-term.
 
Investors driving housing market upswing: Andrew Hanlan
However, at the same time, the RBA has been working with the regulator, APRA, to temper strength in investor credit, with a desired limit of 10% annual growth.

Major banks have announced initiatives in recent weeks in regards to investor lending, including higher interest rates. The impacts of these measures may begin to become apparent in the credit data from around October, given a one to two month lag from finance approvals. 
 
Andrew Hanlan is senior economist for Westpac and can be contacted here

Andrew Hanlan

Andrew Hanlan

Andrew has been with Westpac since 2002. After starting his career in the public sector, Andrew worked at the Commonwealth Treasury in Canberra, before enjoying a stint at Parliament House, where he worked as an adviser to the Finance Minister. His main focus is analysing the Australian macro economy.

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