Sluggish housing credit growth points to lack of investor interest: Westpac

The lack of investor interest in the housing market was evident in the July housing credit figures released by the RBA this week.

Housing credit expanded by 0.42% in July, a slight improvement from June, when the 0.32% rise was the weakest since records began to be kept in 1976, with the exception of July 1984.

The three-month annualised growth pace of housing credit held at 5%, down from the 9% pace prevailing late in 2009 and early in 2010.

The current growth pace for investors is just 3.6%, compared with 5.5% for owner-occupiers.

“This highlights the headwinds facing the sector, including a lack of interest from investors,” says Westpac senior economist Andrew Hanlan.

“The outlook for housing credit is lacklustre, housing affordability is a constraint, households are looking to pay down debt and interest rates are a headwind.”

Westpac forecasts overall credit growth is expected to remain subdued over 2011-12.

Commonwealth Bank economist Michael Workman says the subdued growth in owner-occupier and investor mortgage finance points to a softer housing market going forward.

“Housing credit growth has moderated significantly over 2010 and 2011 as owner?occupiers and investors were impacted by past RBA rate rises and the possibility of more,” he says.

“It points to continuing soft existing home sales, prices and turnover activity.”

However, there is some hope for the investor side of the market.

Workman forecasts investor lending to pick up in 2011-12 as rising rentals and stock market volatility entice them back into the market.

ANZ economists Riki Polygenis and Dylan Eades also noted mortgage growth had fallen to record levels, but say the RBA “remains comfortable with households strengthening their balance sheets”.

“Weakness in housing credit also likely reflects a higher level of repayments, not just soft demand.

“However the RBA will be closely watching the renewed weakness in business credit, which at current rates doesn’t augur well for business investment in non-mining sectors.”

Business credit was flat over July, after declining by 0.7% over June. Over the year to July, business credit declined by 1.9%.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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