Cuts to interest rates help housing credit move off record lows
Over the year to April, the value of outstanding home loans grew by $48.8 billion, to $1.29 trillion, Reserve Bank figures showed on Friday.
In percentage terms, housing credit grew by 4.5 per cent over the year, up slightly from its record-low pace of 4.4 per cent in the year to March.
While growth is still sluggish by historical standards, it is the first time the pace of annual expansion has increased since February 2010, and could signal a turning point for the mortgage market.
The increase comes amid signs of stronger auction clearance rates, house price rises and follows the Reserve Bank's move to cut the cash rate to 2.75 per cent last month, lower than what the government called "emergency levels" during the global financial crisis.
However, economists stressed that households still appeared debt-shy, and there were no signs of a rapid lift in borrowing.
ANZ Bank's head of property research, Paul Braddick, said the annual pace of credit growth had probably bottomed, but it was unlikely to increase sharply.
"We think the second half of this year should see it lift slightly higher," Mr Braddick said.
He also stressed that mortgage growth was likely to remain very weak by historical standards. ANZ is tipping a modest rise in the pace of annual housing credit to 5 per cent by 2014, well shy of the growth rates of up to 14 per cent before the global financial crisis.
JPMorgan economist Tom Kennedy noted the rise, but also pointed out that the 4.5 per cent a year growth in housing credit was "still the fourth weakest reading in the history of the RBA's private sector credit data".
Separate figures from the Australian Prudential Regulation Authority highlighted the battle between banks to snare a bigger share of the mortgage market.
With the value of housing loans increasing by an annual pace of 4.5 per cent over the past six months, Macquarie analyst Mike Wiblin said ANZ and NAB had expanded their mortgage books by 6.7 per cent and 6.9 per cent, respectively. Commonwealth Bank's book had grown by about 5 per cent.
"The question is whether the CBA can continue to rein in the business banks," Mr Wiblin said.
Across the economy, total credit has increased by 3.1 per cent in the past year, with business credit growing by just 1.4 per cent.
Frequently Asked Questions about this Article…
Reserve Bank figures showed outstanding home loans rose by $48.8 billion to $1.29 trillion over the year to April, with annual housing credit growth edging up to 4.5% from 4.4% in the year to March.
The article says deep cuts in interest rates may at last be stimulating household borrowing. The RBA cut the cash rate to 2.75% last month, and the rise in housing credit came alongside stronger auction clearance rates and house price increases, suggesting a link — though economists caution the effect is modest so far.
Despite the uptick, 4.5% is still very weak historically. JPMorgan economist Tom Kennedy noted it was "still the fourth weakest reading" in the RBA's private sector credit data, and the pace is far below pre‑global financial crisis growth of up to 14%.
No — economists say households still appear debt‑shy and there are no signs of a rapid lift in borrowing. ANZ's head of property research, Paul Braddick, said the annual pace has probably bottomed and should lift slightly in the second half, but a sharp increase is unlikely.
APRA data highlighted strong competition: over the past six months ANZ and NAB expanded their mortgage books by about 6.7% and 6.9% respectively, while Commonwealth Bank's mortgage book grew by roughly 5%.
ANZ is forecasting a modest rise in the pace of annual housing credit to about 5% by 2014, but warns growth will likely remain weak by historical standards. Overall, economists expect only a gradual pickup rather than a sharp rebound.
Across the economy, total credit increased by 3.1% over the past year, with business credit growing more slowly at about 1.4%.
For everyday investors, the modest rise in housing credit — combined with stronger auction clearance rates and some house price gains — could signal a tentative turning point in the mortgage market. However, borrowing growth remains weak, so any market improvement is likely to be gradual rather than sudden.
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