Housing finance and credit growth are beginning to stir: Andrew Hanlan

EXPERT OBSERVER

In a recent monthly credit update we wrote "Credit weakness lingers despite lift in housing finance".

A couple of months on, total credit growth slipped in October and annual growth hit a fresh cycle low.

Housing finance is rising and housing credit growth is beginning to stir - but only gradually.

However, business credit dipped in October, -0.1, against a challenging economic backdrop, and personal credit is contracting as households shift to other products.

In October, total credit grew by only 0.1%, which is below the monthly average for the 2019 year to date of 0.2%. The mix was: housing +0.27%; business -0.1%; and personal -0.6%.

Annual credit growth moderated to 2.5%, the slowest pace since April 2010.

Credit growth has progressively eased after peaking at 6.7% during the 2015/16 financial year. Key to the slowdown is the housing downturn as the cycle matured and lending conditions tightened.

Housing credit grew by 3.0% over the past year. That is the weakest result in the history of the series (dating back to the late 1970s) and below the previous cyclical low of 4.4% in mid-2013.

In 2018, the housing sector downturn accelerated as lending conditions tightened further and as investors pulled-back. New lending contracted by 5% in the six months to June and then fell by a sharp 15.4% in the six months to December (as weakness spread from investors to owner-occupiers).

Now in 2019, new lending for housing has turned the corner - with a 15% rebound from June to September, more than reversing the near 6% fall over the initial five months of the year.

The housing rebound has been supported by a number of factors. Sentiment bounced after the May Federal election, which removed uncertainty around tax policy for the sector. The RBA has lowered rates since June by a total of 75bps, with further cuts likely. In addition, APRA has eased mortgage serviceability assessments.

Housing credit is improving but slowing - with growth in October of 0.27%mth, 3.0%yr. The October figure annualised is 3.3%, up from a 3 month annualised low of 2.6%.
Investor credit remains weak, with a broadly flat October month to be 0.2% lower over the year. For owner-occupiers, the figures are 0.44%mth, 4.8%yr.

Business credit growth slowed to 2.7% in October, including a decline in the month, of -0.1%.

The business credit profile has been uneven in 2019. There was a soft spot in the June quarter, around the time of the Federal election, (with growth at only 0.8% annualised), followed by a rebound in the September quarter (up by 3.4% annualised).

For businesses, the economic backdrop has become more challenging. The global economy is slowing and household spending is soft. In this environment business investment in the real economy has lost momentum across the non-mining sectors - which will weigh on credit demand.

Read full report: Australian private credit October' (PDF 193 kb)

ANDREW HANLAN is a senior economist for Westpac