- Credit extended to Australia’s private sector grew at the slowest pace since the start of 2013 in April.
- Annual credit growth for housing grew at the slowest pace on record. Investor credit also expanded at pace never seen before.
- Personal credit fell heavily again, continuing the pattern seen in 28 of the past 30 months. It’s currently declining at the fastest pace since the GFC.
- Credit extended to business was near unchanged ahead of the federal election in May.
Credit extended to Australia’s private sector grew at the slowest pace since the start of 2013 in April, driven by weakness across all categories, including housing.
According to the Reserve Bank of Australia (RBA), total credit expanded by 0.16% after seasonal adjustments, the smallest monthly increase since January 2013.
Over the year, credit growth slowed to 3.7%, a level last seen in in November 2013.
The RBA’s private sector credit report essentially measures outstanding loans issued to Australia’s private sector.
By category, housing credit grew by 0.28% after seasonal adjustments, up marginally from 0.25% a month earlier. Over the year, credit for property purchases dipped to 4%, the weakest result on record.
Helping to explain the continued deceleration in total housing credit growth, loans extended for property investment have fallen sharply over the past year.
In April, investor housing credit grew by less than 0.1%, continuing the stretch of sub-0.1% growth into a seventh consecutive month. That saw growth over the year tumble to just 0.7%, also the weakest result on record.
Credit for owner-occupier property purchases also remained weak, lifting by 0.4% in April, leaving growth over the year at only 5.7%. The annual increase was the smallest since September 2015.
The pronounced slowdown housing credit reflects a number of factors, including a higher proportion of borrowers with amortising loans, uncertainty ahead of the election earlier this month, reduced property turnover along with weak demand given ongoing declines in home prices.
Changes in housing credit growth tend to lead movements in home prices and dwelling approvals by around six months.
However, while the April update points to further house price declines ahead, the prospect of RBA rate cuts and a modest relaxation in home loan lending standards, along with the Coalition’s surprise election victory earlier this month, may lead to a recovery in housing credit growth in the period ahead assuming there’s no unexpected economic shocks.
“Although we do not expect a sharp rebound in housing credit, we do expect it to improve over the coming months,” said Hayden Dimes and David Plank, economists at ANZ.
“This reflects the changes to the mortgage affordability floor made by APRA, the boost in housing sentiment from the election outcome and the anticipated interest rate cuts by the RBA.”
Jonathan Mott, Equities Analyst at UBS, also expects housing credit growth to lift in the period ahead, writing in a report released on Friday that “it is now clear that the regulators will do whatever it takes to stabilise the housing market”.
However, Mott says any bounce in housing credit likely is likely to be “muted”.
While housing credit growth remains weak for the moment, the slowdown in total credit growth in April reflected renewed weakness in loans issued to businesses.
Credit extended to this category grew by 0.05% during the month, seeing annual growth slow to 5%, down marginally from the 5.1% expansion seen in the year to March.
Elsewhere, credit for personal use declined for a tenth consecutive month, sliding 0.28%. Personal credit has now fallen in 28 of the past 24 months.
Reflecting that weakness, credit in this category declined by 2.8%, near the lowest level since the GFC.
The decline in personal credit likely reflects the increased prevalence of buy now, pay later schemes in Australia, seeing demand for traditional credit sources such as credit cards decline.
A greater use of mortgage offset accounts, a reduced wealth effect from house price declines and the impact of tighter lending standards, resulting in weakness in auto finance among other areas, are other factors that have likely contributed to persistent weakness in this category.
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