Housing loans grew at their fastest annual rate in the year to August in almost five years.
According to Reserve Bank sector credit data, housing loans swelled by $9.9 billion, or 5.7%, in the year to the end of August to reach $185.009 billion. That's the fastest annual pace of growth since 6.1% in the year to October 2008. The Reserve Bank confirmed its plans to introduce restrictions on banks' high loan-to-value ratio residential mortgage lending, from (today) October 1, during August.
However, even at 5.7%, the annual growth is still well below the double digit growth recorded between January 2003 and April 2008, which peaked at 17.5% in April 2004.
On a monthly basis, home loans rose by $959 million in August, equivalent to about 0.52%. That's the highest monthly dollar value growth since $1.294 billion in May this year.
The sector credit figures also show solid growth elsewhere.
Agriculture debt rose just over $2 billion, or 4.1%, in the year to the end of August to a fresh record high of $51.710 billion. On a monthly basis it was up $573 million, or 1%.
Business credit increased by $1.619 billion annually, or 2.1%, to $79.131 billion. During the month of August it rose $702 million, or about 0.90%.
And consumer credit rose $141 million year-on-year, or 1.1%, to $13.102 billion. On a monthly basis it was up $65 million.
Total household claims, which is housing debt and consumer credit combined, rose $1 billion during August meaning the annual increase was $10 billion, or 5.4%, to $198.112 billion. That's the fastest annual percentage growth in total household claims since 5.8% in October 2008. Double digit growth was recorded between January 2003 and March 2008, peaking at 16.6% in April 2004.
Across the sector credit data compiled by the Reserve Bank, total debt rose by $13.7 billion in the year to the end of August, or 4.4%, to $328.952 billion.
Here's the take of Westpac's economists on the latest sector credit data:
Credit growth accelerated in August, with the details reflecting a housing market that continued to march higher, and a farm sector turning its focus from the recent drought to what promises to be a much more positive year ahead.
Private sector credit grew at a solid 0.6% monthly pace (seasonally adjusted), the highest since April. Annual credit growth was 4.3% - the highest since May 2009.
Loan growth was also fairly broadly based. In the agri sector, strong global dairy prices and rising farm turnover may have started to outweigh repayment of working capital extended during the drought. Housing credit growth accelerated modestly after two slightly slower months – consistent with a renewed pickup in mortgage approvals in August. And in business lending (a breakdown is available for bank loans only), the biggest increase was to the property and business services sector, which also saw upwards revisions to July. This segment includes property developers and has been the main area of growth in commercial lending over the past year – again pointing to the role of the housing market.
Business lending was also boosted by a rebound in lending to food manufacturers from a sharp drop in July. As with agri lending, we suspect drought-related dynamics have been working their way through this sector, as credit was extended during the drought (there was a big spike in April) and repaid in July.
Of course, August was also the month in which the Reserve Bank announced its intention to restrict low-equity mortgage lending. In last month’s Credit Check, we explained in detail why we believed that those restrictions would ultimately have only a modest impact on housing loan growth. The main reason was that we expected the restrictions to attract property investors into the market even as they shut out some first home buyers.
However, it’s worth emphasising that this is unlikely to be a smooth process, and we wouldn’t be surprised to see mortgage loan growth slow noticeably – albeit temporarily – from November onwards as the restrictions hit housing turnover.
This is a key reason why we expect the RBNZ to keep the OCR unchanged through early next year. Governor Wheeler has said that the lending restrictions will give the Reserve Bank more flexibility around when and how much to raise the OCR – and he will feel in no hurry to hike if he sees the housing market and related credit growth slowing.
However, monetary policy isn’t just about the housing market, and the lending restrictions won’t delay rate hikes indefinitely. By March next year, the Reserve Bank will also have had one more GDP release and two more rounds of inflation data to mull over. On our forecasts both will come in ahead of the Reserve Bank’s current projections. We believe a tightening cycle starting March 2014 will look appropriate on plain old inflation targeting grounds.
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5 Comments
Why not compare the rate of growth of debt to the rate of growth of nominal GDP? That might provide more context than this:
"However, even at 5.7%, the annual growth is still well below the double digit growth recorded between January 2003 and April 2008, which peaked at 17.5% in April 2004."
We know this was stupidity, all we did was bid up the price of each other's houses and get ourselves more deeply in debt.
This Auckland boom on top of the existing boom has even less to do with household debt than the 03-07 boom.
My arguement is that, we know in a normal housing boom (Ireland & the United States) prices rise, the market gets revalued and debt seems to lag a little until the crest of the boom. As the boom flattens out, debt catches up and the amount that house prices have increased by (in inflation adjusted dollar terms) is the same as the amount household debt has increased by (both Ireland and the United Stated were 98% similar).
However, in NZ during the 04-07 period total household liabilities (RBNZ C18 series) only adds up to 35% of the dollar amount house prices went up by.
And here is the thing, given the lack of relation between debt and house prices in NZ, during the individual years the increase in debt was runing in the 20% to 35% of the increase in house prices range. For the past couple of years (2011-12) the increase in debt has been in the 13-15% of house price increases range. From this I have to conclude that household debt has a lot less to do with the current Auckland boom than it did back in 04-07 (which wasn't much then.
Related question to the readership- does anyone know where I can get reliable figures for the total dollar value of Australian housing stock country-wide (so not the 8 cities series). Even a reliable figure for any single year in the 2001-2007 period would do, as I've got some data I could match to for calculating out the other years.
"the amount that house prices have increased by (in inflation adjusted dollar terms) is the same as the amount household debt has increased by"
Why would there be such a corelation? I think what you are suggesting is coincidental. The number of houses bought and sold and loans taken out represents only a few percent of the housing stock whereas the prices are for the entire stock whether sold or not.
As Roger asks, what is going on with total debt to GDP? We have, supposedly had this huge deleveraging but, apart from a few quarters, private debt has continued to rise faster than production. Add in government debt and even when we're "delveraging" debt is rising at over double the growth in the economy. It's pretty obvious we've been suckered on to ride we can't get off.
"Why would there be such a corelation? I think what you are suggesting is coincidental. The number of houses bought and sold and loans taken out represents only a few percent of the housing stock whereas the prices are for the entire stock whether sold or not."
To be honest, that both Ireland and the U.S. were at a one to one relationship was a surprise to me, but that is the data. The key issue is that in both Ireland and the U.S. the dollar amount that house prices went up by is much closer to the amount that debt went up by, suggesting that much more of the housing market is driven by household debt than in NZ.
The mechanism runs basically like this during a boom, prices increase, and the total value of the housing stock is revalued on the basis of changes. This causes, in the figures, house prices to rise faster than debt. However, at some point the boom stops, and at that point debt starts to catch up, as the valuations are no longer being estimated upwards. Eventually (if there is no additonal bubbling) the two reach an equalibrium point, based on how much of the housing market is being payed for out of household debt. In Ireland and the U.S (and the conventional understanding of housing bubbles) you see this played out as the housing bubble peaks, debt catches up. In New Zealand, debt never caught up, which strongly suggests that liquidity has been entering the New Zealand housing market from sources not reflected in household accounts at a much greater rate than other countries.
As regards the current Auckland bubble-on-bubble- yes, some individuals are getting themselves deeply in debt to enter the housing market, but this amount seems even less able to explain the increases than the 04-07 period, based on the differences between debt and stock.
Originally I had figures for Ireland and NZ, and they were clearly different in their patterns, but one explanation was that it was Ireland that was unusual case. Then I managed to put together some figures for the U.S. and it showed absolutely exactly the same pattern as Ireland, which strongly suggests that New Zealand is the odd one out.
DH - have you tried RP Data? Or the below link might help.
http://www.macrobusiness.com.au/2013/07/australias-huge-property-market…
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