Credit growth to Australian housing investors is accelerating rapidly

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Australian housing credit growth continued to slow in December, except to housing investors where growth surged by the most since June 2015.

According to the Reserve Bank of Australia, investor housing credit jumped by 0.8% in December, continuing the acceleration seen since early 2016.

It left annual credit growth to investors at 6.2%, well above the 5.6% pace of November. It was also the fastest annual increase since March 2016.

In seasonally adjusted terms, outstanding credit issued to housing investors now stands at $563.9 billion, more than double the $260 billion level seen a decade earlier.

While annual credit growth to investors remains below the annual 10% limit implemented by Australia’s banking regulator, APRA, as seen in the chart below, the recent acceleration has been pronounced, fitting with recent housing finance data.

According to the ABS, the value of investor lending jumped by 4.9% to $13.269 billion in seasonally adjusted terms in November, the largest amount since June 2015 and the sixth increase seen in the past seven months.

It was also 21.4% higher than the levels reported a year earlier, and was a sharp acceleration on the 13.3% year-on-year increase reported in October.

In comparison to investor housing credit, growth in credit extended to owner-occupiers continued to slow.

It grew by just 0.4% in December, half the pace seen for investors, seeing the annual growth rate slow to 6.4%, the weakest level since October 2015.

Combined, total housing credit grew by 0.5% in December, seeing the annual pace remain unchanged at 6.3%, the equal slowest pace in close to three years.

However, that slowdown has not been uniform in nature, with credit growth for housing investment clearly accelerating again after a regulator-enforced slowdown in 2015.

That rebound has also corresponded with a sharp lift in capital city house prices over the same period, particularly in New South Wales and Victoria, markets that were previously favoured by investors.

According to CoreLogic, Australian capital city house prices jumped by the most since 2009 last year, with gains in Sydney and Melbourne topping 10%, leaving the increase in the median house price in both cities over the past seven years at over 80%.

At a time when housing affordability concerns are already elevated, and with lending to investors picking up pace, many will be pondering whether further macroprudential measures will be implemented by APRA in the period ahead, particularly with financial stability now seemingly being given a greater weighting under RBA governor Philip Lowe.

With rental yields currently plumbing record lows, suggesting that capital growth expectations remain an influential factor for many property investors, these risks are clearly building.

“Annual growth in investor borrowing remains well below APRA’s 10% speed-bump, but ongoing monthly growth of this magnitude would put the regulator on alert once more,” said Jo Masters and Daniel Gradwell, members of ANZ’s economics team, following the release of the December report.

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