Australian housing credit — the dollar value of outstanding loans — continued to grow at a decent clip in August.
According to data released by the Reserve Bank of Australia (RBA), housing credit grew by 0.5% over the month, leaving the increase on a year earlier at 6.6%.
Within that figure, owner-occupier housing credit expanded by 0.5%, marginally outpacing a 0.4% increase by investors. Over the year, outstanding credit to both groups expanded by 6.3% and 7.3% respectively.
Although investor credit growth continues to outpace owner-occupier levels, it slowed from an annual increase of 7.4% in July, the first deceleration since July 2016.
The slowdown likely reflects both attempts from Australia’s banking regulator, APRA, to curb investor activity in housing, along with loans previously classified as those to investors being reclassified as owner-occupiers.
“Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan,” the RBA wrote.
“The net value of switching of loan purpose from investor to owner-occupier is estimated to have been $58 billion over the period of July 2015 to August 2017, of which $1.7 billion occurred in August 2017.”
In dollar terms, the outstanding balance of owner-occupier and investor housing loans currently stands at $1.11 trillion and $580.9 billion.
Both sit at record highs.
According to the ABS data, the total value of Australia’s housing stock, based on valuations at the time, stood at $6.73 trillion at the end of the 2017 June quarter.
This chart from the Commonwealth Bank shows the annual change in both owner-occupier and investor housing credit, along with that to businesses and for personal use.
In terms of households, it appears that Australians are willing to take on debt for housing but not much else.
Gareth Aird, senior economist at the Commonwealth Bank, says that while overall housing finance growth has been higher in the past, even at current levels it’s still running well in excess of household income growth.
“Housing credit growth is running at more than double the rate of growth in household income,” he said following the release of today. “As such, Australia’s household debt to income ratio once again edged up in August to another record high.”
That’s something that the RBA has been concerned about for some time, noting in its September monetary policy statement that “growth in housing debt has been outpacing the slow growth in household incomes”.
However, rather than prompting a near-term rate hike to slow housing credit growth, Aird says the RBA will likely keep policy unchanged for sometime yet on the hope that household incomes will start to pickup.
“We don’t subscribe to the idea that the RBA might tighten policy early to stem the growth in housing credit,” he says.
“Rather, we think the RBA will leave the cash rate on hold throughout most of 2018 with the hope that the debt to income ratio plateaus courtesy of a lift in income.”